What is the Underlying Coherent Behavior in Market Dynamic Equilibrium?

This paper applies a price-volume probability wave differential equation to examine an interacting traders’ preference hypothesis using tick-by-tick high frequency data in Chinese stock market, and provides a new behavioral interpretation on the market dynamic equilibrium. We select intraday cumulative trading volume distribution over price as revealed preferences while an equilibrium price in beliefs is the price at which the corresponding cumulative trading volume achieves a maximum value. We verify that individual preferences over the price are interactively coherent rather than rationally coherent, consistent, or complete transitive in the dynamic equilibrium. It justifies market dynamic equilibrium in evolution without the criterion of rationality. We account for local dynamic equilibrium and overall dynamic disequilibrium in the market and explain actually nonlinear and non-monotone V-shaped probability of selling as a function of profit in an earlier empirical test. It helps understand market trading behavior by a new research route in the future.