Paper: arXiv 2611.01185

Authors: Igor Halperin

Abstract

We introduce the Boom-Busty Marketron, a model of a multi-asset market in which the demand of a single collective investor moves prices and itself depends on market performance. This creates an investor-market reflexive loop in the spirit of Soros’s theory. The market state is stationary without being at equilibrium: a non-equilibrium steady state (NESS), with broken detailed balance and a probability current circulating between mispricing, demand and volatility. While stochastic volatility with the leverage effect already breaks detailed balance and makes the market dynamics irreversible, the investor-market loop pushes the market further away from equilibrium. Calibrated to the S&P 500 from 1996 to 2024 by simulated moments, the model reproduces the stylised facts of returns together with quantitative metrics of the market, including cross-sectional ones, and its return and cycle statistics stay stationary for a century and a half on the 1996–2010 inputs. Its central emergent behaviour is a boom-bust cycle, whose frequency meets the S&P’s within one-sigma ranges. The model also produces a default rate of the order of that of investment-grade issuers, prices inside Fisher Black’s factor of two of value, the dumb-money effect of Frazzini and Lamont, and a measurable arrow of time. Standard long-short factors built from its cross section rotate through the cycle, and so do its industry groups along the defensive axis.

Complexity vs Empirical Score

  • Math Complexity: 8.0/10
  • Empirical Rigor: 7.0/10
  • Quadrant: Holy Grail — high math complexity, high empirical rigor

Why this score: The paper introduces a highly novel model (Boom-Busty Marketron) grounded in Soros’s reflexivity, demonstrating significant mathematical depth in its construction. It also exhibits strong empirical rigor through calibration to S&P 500 data and reproduction of stylized facts and quantitative metrics, including cross-sectional ones. The combination of advanced theory and robust empirical validation places it in the ‘Holy Grail’ quadrant.

Research Flowchart

  flowchart TD
    A[Research Goal: Model Market Dynamics with Investor-Market Reflexivity and Explain Stylized Facts] --> B{Methodology: Introduce Boom-Busty Marketron Model};
    B --> C[Model Core: Investor-Market Reflexive Loop (Soros's Theory) & Stochastic Volatility];
    C --> D[Data/Inputs: S&P 500 (1996-2024)];
    D --> E[Computational Process: Calibrate Model by Simulated Moments];
    E --> F[Key Findings: Reproduces Stylized Facts, Boom-Bust Cycles (S&P frequency), NESS, Default Rates, Dumb-Money Effect, Arrow of Time, Rotating Cross-Sectional Factors];