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Financial markets and the phase transition between water and steam

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  • Schmidhuber, Christof

Abstract

A lattice gas model of financial markets is presented that has the potential to explain previous empirical observations of the interplay of trends and reversion in the markets, including a Langevin equation for the time evolution of trends. In this model, the shares of an asset correspond to gas molecules that are distributed across a hidden social network of investors. Neighbors in the network tend to align their positions due to herding behavior, corresponding to an attractive force of the gas molecules.

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  • Schmidhuber, Christof, 2022. "Financial markets and the phase transition between water and steam," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 592(C).
    • Handle: RePEc:eee:phsmap:v:592:y:2022:i:c:s0378437122000152
    DOI: 10.1016/j.physa.2022.126873
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    Cited by:

    1. Christoph J. Borner & Ingo Hoffmann & John H. Stiebel, 2024. "A closer look at the chemical potential of an ideal agent system," Papers 2401.09233, arXiv.org.
    2. 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.

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