Speculative trading: the price multiplier effect

During a speculative episode the price of an item jumps from an initial lev el pr to a peak level p(2) before more or less returning to level p(1). The ratio p(2)/p(1) is referred to as the amplitude A of the peak. This paper shows that for a given market the peak amplitude is a linear function of th e logarithm of the price at the beginning of the speculative episode; with pi expressed in 1999 euros the relationship takes the form: A = a lnp(1) b; the values of the parameter a turn out to be relatively independent of t he market considered: a similar or equal to 0.5, the values of the paramete r b are more market-dependent, but are stable in the course of time for a g iven market. This relationship suggests that the higher the stakes the more "bullish" the market becomes. Possible mechanisms of this "risk affinity" effect are discussed.