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A statistical physics perspective on criticality in financial markets

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  • Thomas Bury
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    Abstract

    Stock markets are complex systems exhibiting collective phenomena and particular features such as synchronization, fluctuations distributed as power-laws, non-random structures and similarity to neural networks. Such specific properties suggest that markets operate at a very special point. Financial markets are believed to be critical by analogy to physical systems but few statistically founded evidence have been given. Through a data-based methodology and comparison to simulations inspired by statistical physics of complex systems, we show that the Dow Jones and indices sets are not rigorously critical. However, financial systems are closer to the criticality in the crash neighborhood.

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    File URL: http://arxiv.org/pdf/1310.2446
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    Paper provided by arXiv.org in its series Papers with number 1310.2446.

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    Date of creation: Oct 2013
    Date of revision: Jan 2014
    Handle: RePEc:arx:papers:1310.2446

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    Web page: http://arxiv.org/

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    1. W.-X. Zhou & D. Sornette, 2007. "Self-organizing Ising model of financial markets," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 55(2), pages 175-181, 01.
    2. Thomas Bury, 2012. "Statistical pairwise interaction model of stock market," Papers 1206.4420, arXiv.org, revised Jan 2014.
    3. Iacopo Mastromatteo & Matteo Marsili, 2011. "On the criticality of inferred models," Papers 1102.1624, arXiv.org, revised Sep 2011.
    4. D. Sornette, 2003. "Critical Market Crashes," Papers cond-mat/0301543, arXiv.org.
    5. Y. Shapira & D. Y. Kenett & E. Ben-Jacob, 2009. "The Index cohesive effect on stock market correlations," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 72(4), pages 657-669, December.
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