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A spring–block analogy for the dynamics of stock indexes

Author

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  • Sándor, Bulcsú
  • Néda, Zoltán

Abstract

A spring–block chain placed on a running conveyor belt is considered for modeling stylized facts observed in the dynamics of stock indexes. Individual stocks are modeled by the blocks, while the stock–stock correlations are introduced via simple elastic forces acting in the springs. The dragging effect of the moving belt corresponds to the expected economic growth. The spring–block system produces collective behavior and avalanche like phenomena, similar to the ones observed in stock markets. An artificial index is defined for the spring–block chain, and its dynamics is compared with the one measured for the Dow Jones Industrial Average. For certain parameter regions the model reproduces qualitatively well the dynamics of the logarithmic index, the logarithmic returns, the distribution of the logarithmic returns, the avalanche-size distribution and the distribution of the investment horizons. A noticeable success of the model is that it is able to account for the gain–loss asymmetry observed in the inverse statistics. Our approach has mainly a pedagogical value, bridging between a complex socio-economic phenomena and a basic (mechanical) model in physics.

Suggested Citation

  • Sándor, Bulcsú & Néda, Zoltán, 2015. "A spring–block analogy for the dynamics of stock indexes," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 427(C), pages 122-131.
    • Handle: RePEc:eee:phsmap:v:427:y:2015:i:c:p:122-131
    DOI: 10.1016/j.physa.2015.01.079
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    References listed on IDEAS

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    1. Iwaisako, Tokuo & 祝迫, 得夫, 2007. "Stock Index Autocorrelation and Cross-autocorrelations of Size-sorted Portfolios in the Japanese Market," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 48(1), pages 95-112, June.
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    Cited by:

    1. Lucia Bellenzier & J{o}rgen Vitting Andersen & Giulia Rotundo, 2016. "Contagion in the world's stock exchanges seen as a set of coupled oscillators," Papers 1602.07452, arXiv.org.
    2. Lucia Bellenzier & Jørgen Vitting Andersen & Giulia Rotundo, 2016. "Contagion in the World's Stock Exchanges Seen as a Set of Coupled Oscillators," Post-Print hal-01215620, HAL.
    3. repec:hal:wpaper:hal-01215620 is not listed on IDEAS
    4. Lucia Bellenzier & Jørgen Vitting Andersen & Giulia Rotundo, 2015. "Contagion in the world's stock exchanges seen as a set of coupled oscillators," Post-Print halshs-01242303, HAL.
    5. Lucia Bellenzier & Jørgen Vitting Andersen & Giulia Rotundo, 2015. "Contagion in the world's stock exchanges seen as a set of coupled oscillators," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01242303, HAL.

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