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Spontaneous symmetry breaking of arbitrage

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  • Jaehyung Choi
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    Abstract

    We introduce the concept of spontaneous symmetry breaking to arbitrage modeling. In the model, the arbitrage strategy is considered as being in the symmetry breaking phase and the phase transition between arbitrage mode and no-arbitrage mode is triggered by a control parameter. We estimate the control parameter for momentum strategy with real historical data. The momentum strategy aided by symmetry breaking shows stronger performance and has a better risk measure than the naive momentum strategy in U.S. and South Korean markets.

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    File URL: http://arxiv.org/pdf/1107.5122
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1107.5122.

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    Date of creation: Jul 2011
    Date of revision: Apr 2012
    Publication status: Published in Physica A: Statistical Mechanics and its Applications 391 (2012), pp. 3206-3218
    Handle: RePEc:arx:papers:1107.5122

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    Cited by:
    1. Jaehyung Choi & Sungsoo Choi & Wonseok Kang, 2012. "Momentum universe shrinkage effect in price momentum," Papers 1211.6517, arXiv.org.
    2. Jaehyung Choi, 2012. "Physical approach to price momentum and its application to momentum strategy," Papers 1208.2775, arXiv.org, revised Jul 2014.

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