Financial prices display ‘fractal’ properties. This column conjectures that this is caused by interactions among agents with different horizons and interpretations of information. This structure appears to be associated with a special sort of stability that can be disrupted – leading to price crashes – if these interaction breaks down. While embryonic, this thinking may have important implications for the regulation of financial markets.
Financial prices appear to exhibit ‘fractal’ properties over time. A defining property of fractals is the tendency of an object to be similar to parts of itself.1 To fix ideas before turning to financial markets, consider a well-known natural example – an oak tree (Figure 1).
Figure 1. A fractal tree