Stefan Schulmeister: On the manic-depressive fluctuations of speculative prices

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On the manic-depressive fluctuations of speculative prices

27 pp.
4.20 EUR
(March 2009)

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The chapter by Stephan Schulmeister deals with the relationship between two phenomena: Asset prices move in a sequence of upward trends (“bull markets”) and downward trends (“bear markets”) which last for several years. At the same time, trading in financial markets has become progressively “faster”, the time horizon of most transactions is shorter than a few hours. This coincidence begs the question: How do very short-term transactions generate long-term asset price trends? The main result of the chapter is the following. Over short periods of time (i.e., days or weeks), asset prices move in a sequence of “underlying” runs, sometimes interrupted by sideways movements (“whipsaws”). Over long periods of time, these runs last longer in one direction than the “counter-runs” do. The accumulation of these price movements results in upward or downward trends, i.e., “bull markets” and “bear markets”. The sequences of these trends add up to long-term irregular cycles of asset prices around the fundamental equilibrium without any tendency to converge towards this level.

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