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Trends, reversion, and critical phenomena in financial markets

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  • Schmidhuber, Christof

Abstract

Financial markets across all asset classes are known to exhibit trends, which have been exploited by traders for decades. However, a closer look at the data reveals that those trends tend to revert when they become too strong. Here, we empirically measure the interplay between trends and reversion in detail, based on 30 years of daily futures prices for equity indices, interest rates, currencies and commodities.

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  • Schmidhuber, Christof, 2021. "Trends, reversion, and critical phenomena in financial markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 566(C).
    • Handle: RePEc:eee:phsmap:v:566:y:2021:i:c:s0378437120309407
    DOI: 10.1016/j.physa.2020.125642
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    1. Jean-Philippe Bouchaud, 2021. "The Inelastic Market Hypothesis: A Microstructural Interpretation," Papers 2108.00242, arXiv.org, revised Jan 2022.
    2. Zitis, Pavlos I. & Contoyiannis, Yiannis & Potirakis, Stelios M., 2022. "Critical dynamics related to a recent Bitcoin crash," International Review of Financial Analysis, Elsevier, vol. 84(C).
    3. Sara A. Safari & Christof Schmidhuber, 2025. "Trends and Reversion in Financial Markets on Time Scales from Minutes to Decades," Papers 2501.16772, arXiv.org, revised May 2025.
    4. Christof Schmidhuber, 2024. "Critical Dynamics of Random Surfaces: Time Evolution of Area and Genus," Papers 2409.05547, arXiv.org, revised Jun 2025.
    5. Eugene Larsen-Hallock & Adam Rej & David Thesmar, 2022. "Expectations Formation with Fat-tailed Processes: Evidence from Sales Forecasts," Papers 2210.10169, arXiv.org.
    6. Schmidhuber, Christof, 2022. "Financial markets and the phase transition between water and steam," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 592(C).

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