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The timing of information transmission in financial markets

Listed author(s):
  • Vindel, Jose M.
  • Trincado, Estrella
Registered author(s):

    This article shows turbulent behavior in a series of financial indexes assuming that they follow a cascade process of the same type as do turbulent fluids. With such a model, the energy flux between the eddies that emerge in the fluid is analogous to the financial information flux over the course of time. The results obtained confirm the variability of variation of the indexes for the considered time scale (the turbulent intermittency typical for fluids), and they also confirm that when we descend along the cascade, that is to say, when we consider smaller time intervals, the rate at which the hypothetical eddies of information dissipate becomes greater than the rate at which the information is transmitted. This fact can explain the cyclical nature of crises: ultimately, financial events have a memory of the past. Besides, the NASDAQ singular behavior regarding the number of jumps, the degree of intermittency of the turbulence and the life time of the hypothetical eddies has been analysed.

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    Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

    Volume (Year): 389 (2010)
    Issue (Month): 24 ()
    Pages: 5749-5758

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    Handle: RePEc:eee:phsmap:v:389:y:2010:i:24:p:5749-5758
    DOI: 10.1016/j.physa.2010.08.048
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    1. Greco, Antonella & Carbone, Vincenzo & Sorriso-Valvo, Luca, 2007. "Non-Poisson intermittent events in price formation in a Ising spin model of market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 376(C), pages 480-486.
    2. Smith, Adam, 1977. "An Inquiry into the Nature and Causes of the Wealth of Nations," University of Chicago Press Economics Books, University of Chicago Press, number 9780226763743 edited by Cannan, Edwin, April.
    3. L. Chevillard & B. Castaing & E. Lévêque, 2005. "On the rapid increase of intermittency in the near-dissipation range of fully developed turbulence," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 45(4), pages 561-567, June.
    4. Greco, Antonella & Sorriso-Valvo, Luca & Carbone, Vincenzo & Cidone, Stefano, 2008. "Waiting time distributions of the volatility in the Italian MIB30 index: Clustering or Poisson functions?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(16), pages 4272-4284.
    5. Herbert A. Simon, 1996. "The Sciences of the Artificial, 3rd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262691914, January.
    6. T. Lux, 2001. "Turbulence in financial markets: the surprising explanatory power of simple cascade models," Quantitative Finance, Taylor & Francis Journals, vol. 1(6), pages 632-640.
    7. Hossein Asgharian & Christoffer Bengtsson, 2006. "Jump Spillover in International Equity Markets," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 4(2), pages 167-203.
    8. Nawroth, Andreas P. & Peinke, Joachim, 2007. "Medium and small-scale analysis of financial data," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 382(1), pages 193-198.
    9. O. Barndorff-Nielsen & P. Blæsild & J. Schmiegel, 2004. "A parsimonious and universal description of turbulent velocity increments," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 41(3), pages 345-363, October.
    10. Suzanne S. Lee & Per A. Mykland, 2008. "Jumps in Financial Markets: A New Nonparametric Test and Jump Dynamics," Review of Financial Studies, Society for Financial Studies, vol. 21(6), pages 2535-2563, November.
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