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Financial price dynamics and phase transitions in the stock markets

Author

Listed:
  • Ditian Zhang

    (Southeast University)

  • Yangyang Zhuang

    (Southeast University)

  • Pan Tang

    (Southeast University)

  • Hongjuan Peng

    (Southeast University)

  • Qingying Han

    (Southeast University)

Abstract

Price dynamics in stock market is modelled by a statistical physics systems: Ising model. A comparative analysis of the historical dynamics of stock returns between the US, UK, and French markets is given. Since the Ising model requires binary inputs, the effect of binarization is studied. Then, using the TAP approximation method, external fields and coupling strengths are calculated. The fluctuation cycles of coupling strengths have a remarkable corresponding relationship with the important period of the financial market. The highlight of this paper is to verify the phase transition can also occur in the stock market and it reveals the transformation of the market state. The numerical solution in this paper is consistent with the exact solution obtained by Lars Onsager. Our findings can help to discover the economic cycles and provide more possibilities for studying financial markets using physical models. Graphic abstract

Suggested Citation

  • Ditian Zhang & Yangyang Zhuang & Pan Tang & Hongjuan Peng & Qingying Han, 2023. "Financial price dynamics and phase transitions in the stock markets," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 96(3), pages 1-21, March.
    • Handle: RePEc:spr:eurphb:v:96:y:2023:i:3:d:10.1140_epjb_s10051-023-00501-6
    DOI: 10.1140/epjb/s10051-023-00501-6
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