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Self-organized criticality and stock market dynamics: an empirical study

Author

Listed:
  • Bartolozzi, M.
  • Leinweber, D.B.
  • Thomas, A.W.

Abstract

The stock market is a complex self-interacting system, characterized by intermittent behaviour. Periods of high activity alternate with periods of relative calm. In the present work we investigate empirically the possibility that the market is in a self-organized critical state (SOC). A wavelet transform method is used in order to separate high activity periods, related to the avalanches found in sandpile models, from quiescent. A statistical analysis of the filtered data shows a power law behaviour in the avalanche size, duration and laminar times. The memory process, implied by the power law distribution of the laminar times, is not consistent with classical conservative models for self-organized criticality. We argue that a “near-SOC” state or a time dependence in the driver, which may be chaotic, can explain this behaviour.

Suggested Citation

  • Bartolozzi, M. & Leinweber, D.B. & Thomas, A.W., 2005. "Self-organized criticality and stock market dynamics: an empirical study," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 350(2), pages 451-465.
    • Handle: RePEc:eee:phsmap:v:350:y:2005:i:2:p:451-465
    DOI: 10.1016/j.physa.2004.11.061
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    Citations

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    Cited by:

    1. Boon Kin Teh & Siew Ann Cheong, 2016. "The Asian Correction Can Be Quantitatively Forecasted Using a Statistical Model of Fusion-Fission Processes," PLOS ONE, Public Library of Science, vol. 11(10), pages 1-13, October.
    2. Bartolozzi, M. & Leinweber, D.B. & Thomas, A.W., 2006. "Symbiosis in the Bak–Sneppen model for biological evolution with economic applications," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 365(2), pages 499-508.
    3. Alessio Emanuele Biondo & Alessandro Pluchino & Andrea Rapisarda, 2017. "Informative Contagion Dynamics in a Multilayer Network Model of Financial Markets," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 3(3), pages 343-366, November.

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