Applications of statistical physics in finance and economics
AbstractThis chapter reviews recent research adopting methods from statistical physics in theoretical or empirical work in economics and nance. The bulk of what has recently become known as 'econophysics' in broader circles draws its motivation from observed scaling laws in nancial markets and the abundance of data available from the economy's nancial sphere. The rst part of this review presents the robust power laws encountered in nancial economics and discusses potential explanations for scaling in nance derived from models of stochastic interactions of traders. Sec. 3 provides an overview over other applications of statistical physics methodology in nance and attempts to evaluate the impact they have had so far on nancial economies. With the following section, the review turns to recent work on the emergence of wealth and income heterogeneity and the recent inception of new strands of research on this topic both within econophysics and the neoclassical economics tradition. The third part reviews the new stylized facts that have been identi ed in cross-sectional data of rm characteristics and agent-based approaches to industrial organization and macroeconomic dynamics that have been motivated by these ndings. We conclude with an assessment of the major methodological contributions of this new strand of research. --
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Bibliographic InfoPaper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2007,05.
Date of creation: 2007
Date of revision:
Other versions of this item:
- Thomas Lux, 2007. "Application of Statistical Physics in Finance and Economics," Working Papers wp07-09, Warwick Business School, Financial Econometrics Research Centre.
- Thomas Lux, 2008. "Applications of Statistical Physics in Finance and Economics," Kiel Working Papers 1425, Kiel Institute for the World Economy.
- C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-05-12 (All new papers)
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- Kristoufek, Ladislav, 2009.
"Procesy s dlouhou pamětí a jejich vývoj ve výnosech indexu PX v letech 1999 – 2009
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- Demary, Markus, 2010.
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- Kristoufek, Ladislav, 2009. "Distinguishing between short and long range dependence: Finite sample properties of rescaled range and modified rescaled range," MPRA Paper 16424, University Library of Munich, Germany.
- Ladislav Krištoufek, 2010. "Long-Term Memory and Its Evolution in Returns of Stock Index PX Between 1997 and 2009," Politická ekonomie, University of Economics, Prague, vol. 2010(4), pages 471-487.
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