About the lab

To be completed. https://www.econophysix.com/

Featured projects (1)

Project
Empirical research on the relationship between financial transactions and underlying asset prices.

Featured research (8)

We relax the strong rationality assumption for the agents in the paradigmatic Kyle model of price formation, thereby reconciling the framework of asymmetrically informed traders with the Adaptive Market Hypothesis, where agents use inductive rather than deductive reasoning. Building on these ideas, we propose a stylised model able to account parsimoniously for a rich phenomenology, ranging from excess volatility to volatility clustering. While characterising the excess-volatility dynamics, we provide a microfoundation for GARCH models. Volatility clustering is shown to be related to the self-excited dynamics induced by traders' behaviour, and does not rely on clustered fundamental innovations. Finally, we propose an extension able to account for the fragile dynamics exhibited by real markets during flash crashes.
The Slutsky equation, central in consumer choice theory, is derived from the usual hypotheses underlying most standard models in Economics, such as full rationality, homogeneity, and absence of interactions. We present a statistical physics framework that allows us to relax such assumptions. We first derive a general fluctuation-response formula that relates the Slutsky matrix to spontaneous fluctuations of consumption rather than to response to changing prices and budget. We then show that, within our hypotheses, the symmetry of the Slutsky matrix remains valid even when agents are only boundedly rational but non-interacting. We then propose a model where agents are influenced by the choice of others, leading to a phase transition beyond which consumption is dominated by herding (or `"fashion") effects. In this case, the individual Slutsky matrix is no longer symmetric, even for fully rational agents. The vicinity of the transition features a peak in asymmetry.
We study the conditions under which input-output networks can dynamically attain a competitive equilibrium, where markets clear and profits are zero. We endow a classical firm network model with minimal dynamical rules that reduce supply/demand imbalances and excess profits. We show that the time needed to reach equilibrium diverges to infinity as the system approaches an instability point beyond which the Hawkins-Simons condition is violated and competitive equilibrium is no longer admissible. We argue that such slow dynamics is a source of excess volatility, through accumulation and amplification of exogenous shocks. Factoring in essential physical constraints absent in our minimal model, such as causality or inventory management, we then propose a dynamically consistent model that displays a rich variety of phenomena. Competitive equilibrium can only be reached after some time and within some restricted region of parameter space, outside of which one observes spontaneous periodic and chaotic dynamics, reminiscent of real business cycles. This suggests an alternative explanation of excess volatility in terms of purely endogenous fluctuations. Diminishing return to scale and increased perishability of goods are found to ease convergence towards equilibrium.
We develop a tractable macroeconomic model that captures dynamic behaviors across multiple timescales, including business cycles. The model is anchored in a dynamic capital demand framework reflecting an interactions-based process whereby firms determine capital needs and make investment decisions at the micro level. We derive equations for aggregate demand from this micro setting and embed them in the Solow growth economy. As a result, we obtain a closed-form dynamical system with which we study economic fluctuations and their impact on long-term growth. For realistic parameters, the model has two attracting equilibria: one at which the economy contracts and one at which it expands. This bi-stable configuration gives rise to quasiperiodic fluctuations, characterized by the economy's prolonged entrapment in either a contraction or expansion mode punctuated by rapid alternations between them. We identify the underlying endogenous mechanism as a coherence resonance phenomenon. In addition, the model admits a stochastic limit cycle likewise capable of generating quasiperiodic fluctuations; however, we show that these fluctuations cannot be realized as they induce unrealistic growth dynamics. We further find that while the fluctuations powered by coherence resonance can cause substantial excursions from the equilibrium growth path, such deviations vanish in the long run as supply and demand converge.
We develop a tractable macroeconomic model that captures dynamic behaviors across multiple timescales, including business cycles. The model is anchored in a dynamic capital demand framework reflecting an interactions-based process whereby firms determine capital needs and make investment decisions at the micro level. We derive equations for aggregate demand from this micro setting and embed them in the Solow growth economy. As a result, we obtain a closed-form dynamical system with which we study economic fluctuations and their impact on long-term growth. For realistic parameters, the model has two attracting equilibria: one at which the economy contracts and one at which it expands. This bi-stable configuration gives rise to quasiperiodic fluctuations, characterized by the economy's prolonged entrapment in either a contraction or expansion mode punctuated by rapid alternations between them. We identify the underlying endogenous mechanism as a coherence resonance phenomenon. In addition, the model admits a stochastic limit cycle likewise capable of generating quasiperiodic fluctuations; however, we show that these fluctuations cannot be realized as they induce unrealistic growth dynamics. We further find that while the fluctuations powered by coherence resonance can cause substantial excursions from the equilibrium growth path, such deviations vanish in the long run as supply and demand converge.

Lab head

Michael Benzaquen
Department
  • Laboratoire d'Hydrodynamique (LadHyX)

Members (12)

Iacopo Mastromatteo
  • Capital Fund Management
Armine Karami
  • French National Centre for Scientific Research
Antoine Fosset
  • École Polytechnique
Jose Moran
  • University of Oxford
Lorenzo Dall'Amico
  • ISI Foundation
Michele Vodret
  • École Polytechnique
Thierry Ondarçuhu
Thierry Ondarçuhu
  • Not confirmed yet
Frédéric Bucci
Frédéric Bucci
  • Not confirmed yet
Romain Labbé
Romain Labbé
  • Not confirmed yet
J.-P. Bouchaud
J.-P. Bouchaud
  • Not confirmed yet
Federico Morelli
Federico Morelli
  • Not confirmed yet
Mehdi Tomas
Mehdi Tomas
  • Not confirmed yet