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On the “usual” misunderstandings between econophysics and finance: Some clarifications on modelling approaches and efficient market hypothesis

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  • Ausloos, Marcel
  • Jovanovic, Franck
  • Schinckus, Christophe

Abstract

In line with the recent research and debates about econophysics and financial economics, this article discusses on usual misunderstandings between the two disciplines in terms of modelling and basic hypotheses. In the literature devoted to econophysics, the methodology used by financial economists is frequently considered as a top-down approach (starting from a priori “first principles”) while econophysicists rather present themselves as scholars working with a (empirical data prone) bottom-up approach. Although this dualist perspective is very common in the econophysics literature, this paper claims that the distinction is very confusing and does not permit to reveal the essence of the differences between finance and econophysics. The distinction between these two fields is mainly investigated here through the lens of the Efficient Market Hypothesis in order to show that, in substance, econophysics and financial economics tend to have a similar approach implying that the misunderstanding between these two fields at the modelling level can therefore be overstepped.

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  • Ausloos, Marcel & Jovanovic, Franck & Schinckus, Christophe, 2016. "On the “usual” misunderstandings between econophysics and finance: Some clarifications on modelling approaches and efficient market hypothesis," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 7-14.
  • Handle: RePEc:eee:finana:v:47:y:2016:i:c:p:7-14
    DOI: 10.1016/j.irfa.2016.05.009
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    1. repec:eee:phsmap:v:507:y:2018:i:c:p:89-98 is not listed on IDEAS
    2. Victor Olkhov, 2017. "Econophysics Macroeconomic Model," Papers 1701.06625, arXiv.org.
    3. repec:eee:phsmap:v:505:y:2018:i:c:p:454-470 is not listed on IDEAS
    4. Jovanovic, Franck & Schinckus, Christophe, 2017. "Econophysics and Financial Economics: An Emerging Dialogue," OUP Catalogue, Oxford University Press, number 9780190205034.
    5. Tudorel Andrei & Bogdan Oancea & Peter Richmond & Gurjeet Dhesi & Claudiu Herteliu, 2017. "Decomposition of the Inequality of Income Distribution by Income Types - Application for Romania," Papers 1709.07960, arXiv.org.
    6. de Area Leão Pereira, Eder Johnson & da Silva, Marcus Fernandes & Pereira, H.B.B., 2017. "Econophysics: Past and present," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 473(C), pages 251-261.

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