Editing Financial market (section)

==Analysis of financial markets==
: ''See [[Statistical analysis of financial markets]]'', ''[[statistical finance]]''

Much effort has gone into the study of financial markets and how prices vary with time. [[Charles Dow]], one of the founders of [[Dow Jones & Company]] and [[The Wall Street Journal]], enunciated a set of ideas on the subject which are now called [[Dow theory]]. This is the basis of the so-called [[technical analysis]] method of attempting to predict future changes. One of the tenets of "technical analysis" is that [[market trend]]s give an indication of the future, at least in the short term. The claims of the technical analysts are disputed by many academics, who claim that the evidence points rather to the [[random walk hypothesis]], which states that the next change is not correlated to the last change. The role of human psychology in price variations also plays a significant factor. Large amounts of volatility often indicate the presence of strong emotional factors playing into the price. Fear can cause excessive drops in price and greed can create bubbles. In recent years the rise of algorithmic and high-frequency program trading has seen the adoption of momentum, ultra-short term moving average and other similar strategies which are based on technical as opposed to fundamental or theoretical concepts of market behaviour. For instance, according to a study published by the European Central Bank,<ref>{{Cite web|title=High Frequency Trading and Price Discovery, Working Paper Series NO 1602 / november 2013|url=https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1602.pdf |archive-url=https://ghostarchive.org/archive/20221009/https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1602.pdf |archive-date=2022-10-09 |url-status=live|access-date=7 December 2021}}</ref> high frequency trading has a substantial correlation with news announcements and other relevant public information that are able to create wide price movements (e.g., interest rates decisions, trade of balances etc.)

The scale of changes in price over some unit of time is called the [[Volatility (finance)|volatility]].
It was discovered by [[Benoit Mandelbrot]] that changes in prices do not follow a [[normal distribution]], but are rather modeled better by [[Levy function|Lévy stable distributions]]. The scale of change, or volatility, depends on the length of the time unit to a [[power law|power]] a bit more than 1/2. Large changes up or down are more likely than what one would calculate using a normal distribution with an estimated [[standard deviation]].