Multilevel Convergence and Cluster Fluctuations Based on Price Bubbles and Fractal Structure

Cluster fluctuations and fractal structures are the essential features of space-time correlation in complex financial systems. However, the microscopic mechanism of creating and expanding these two features in financial markets remains challenging. In the present study, the process of forming cluster fluctuations according to the fractal structure of financial markets is investigated using a factor-based model design and considering a new interactive mechanism called multilevel convergence. Virtual agents trade in different groups is measured at three levels: stock, segment, and market, according to market performance and their mass behavior. The results show that multilevel convergence is one of the microscopic mechanisms of the microstructure of financial markets, along with providing new insights into space-time correlations of financial markets. In other words, multilevel collective behavior is an essential factor in cluster fluctuations, price bubbles, and market fractals and should be considered in interpreting the concept of risk and defining risk management strategies from this perspective.