Random Fractals and Turbulence in U.S. Bond Fund Flows

Abstract

Evidence is found of fully developed turbulence in the increments of U.S. bond fund flows. These flow increments are found to be both anisotropic and locally isotropic. The response function of the market participants generating the flow turbulence is linked to both renormalization and scale invariance in physics and aggregation and representative agent theory in economics. In this paper we show that these two topics are closely related to each other and that the cluster of opinions represented by representative agents' renormalization is fractal. The fractals from the renormalization are shown to be random.