IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Econophysics review: I. Empirical facts

  • Anirban Chakraborti
  • Ioane Muni Toke
  • Marco Patriarca
  • Frederic Abergel
Registered author(s):

    This article and the companion paper aim at reviewing recent empirical and theoretical developments usually grouped under the term Econophysics. Since the name was coined in 1995 by merging the words 'Economics' and 'Physics', this new interdisciplinary field has grown in various directions: theoretical macroeconomics (wealth distribution), microstructure of financial markets (order book modeling), econometrics of financial bubbles and crashes, etc. We discuss the interactions between Physics, Mathematics, Economics and Finance that led to the emergence of Econophysics. We then present empirical studies revealing the statistical properties of financial time series. We begin the presentation with the widely acknowledged 'stylized facts', which describe the returns of financial assets—fat tails, volatility clustering, autocorrelation, etc.—and recall that some of these properties are directly linked to the way 'time' is taken into account. We continue with the statistical properties observed on order books in financial markets. For the sake of illustrating this review, (nearly) all the stated facts are reproduced using our own high-frequency financial database. Finally, contributions to the study of correlations of assets such as random matrix theory and graph theory are presented. The companion paper will review models in Econophysics from the point of view of agent-based modeling.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.tandfonline.com/doi/abs/10.1080/14697688.2010.539248
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Taylor & Francis Journals in its journal Quantitative Finance.

    Volume (Year): 11 (2011)
    Issue (Month): 7 ()
    Pages: 991-1012

    as
    in new window

    Handle: RePEc:taf:quantf:v:11:y:2011:i:7:p:991-1012
    Contact details of provider: Web page: http://www.tandfonline.com/RQUF20

    Order Information: Web: http://www.tandfonline.com/pricing/journal/RQUF20

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. R. Mantegna, 1999. "Hierarchical structure in financial markets," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 11(1), pages 193-197, September.
    2. Brock, William A. & Hommes, Cars H., 1998. "Heterogeneous beliefs and routes to chaos in a simple asset pricing model," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1235-1274, August.
    3. Xavier Gabaix & Parameswaran Gopikrishnan & Vasiliki Plerou & H. Eugene Stanley, 2006. "Institutional Investors and Stock Market Volatility," The Quarterly Journal of Economics, MIT Press, vol. 121(2), pages 461-504, May.
    4. Szabolcs Mike & J. Doyne Farmer, 2007. "An empirical behavioral model of liquidity and volatility," Papers 0709.0159, arXiv.org.
    5. Yanhui Liu & Pierre Cizeau & Martin Meyer & Chung-Kang Peng & H. Eugene Stanley, 1997. "Correlations in Economic Time Series," Papers cond-mat/9706021, arXiv.org.
    6. Jean-Philippe Bouchaud & Marc Mezard & Marc Potters, 2002. "Statistical properties of stock order books: empirical results and models," Science & Finance (CFM) working paper archive 0203511, Science & Finance, Capital Fund Management.
    7. Thomas Lux & Didier Sornette, 1999. "On Rational Bubbles and Fat Tails," Discussion Paper Serie B 458, University of Bonn, Germany.
    8. Fabrizio Lillo & J. Doyne Farmer, 2003. "The long memory of the efficient market," Papers cond-mat/0311053, arXiv.org, revised Jul 2004.
    9. Challet, Damien & Stinchcombe, Robin, 2001. "Analyzing and modeling 1+1d markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 300(1), pages 285-299.
    10. Clark, Peter K, 1973. "A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices," Econometrica, Econometric Society, vol. 41(1), pages 135-55, January.
    11. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
    12. Kullmann, L & Kertész, J & Mantegna, R.N, 2000. "Identification of clusters of companies in stock indices via Potts super-paramagnetic transitions," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 287(3), pages 412-419.
    13. Vasiliki Plerou & Parameswaran Gopikrishnan & Bernd Rosenow & Luis A. Nunes Amaral & H. Eugene Stanley, 1999. "Universal and non-universal properties of cross-correlations in financial time series," Papers cond-mat/9902283, arXiv.org.
    14. Parameswaran Gopikrishnan & Vasiliki Plerou & Luis A. Nunes Amaral & Martin Meyer & H. Eugene Stanley, 1999. "Scaling of the distribution of fluctuations of financial market indices," Papers cond-mat/9905305, arXiv.org.
    15. Murad S. Taqqu, 2001. "Bachelier and his times: A conversation with Bernard Bru," Finance and Stochastics, Springer, vol. 5(1), pages 3-32.
    16. Jean-Michel Courtault & Youri Kabanov & Bernard Bru & Pierre Crepel & Isabelle Lebon & Arnaud Le Marchand, 2000. "Louis Bachelier On the centenary of Théorie de la Spéculation," Post-Print halshs-00447592, HAL.
    17. Kullmann, L & Töyli, J & Kertesz, J & Kanto, A & Kaski, K, 1999. "Characteristic times in stock market indices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 269(1), pages 98-110.
    18. Alan P. Kirman, 1992. "Whom or What Does the Representative Individual Represent?," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 117-136, Spring.
    19. Robert F. Engle, 2000. "The Econometrics of Ultra-High Frequency Data," Econometrica, Econometric Society, vol. 68(1), pages 1-22, January.
    20. Engle, Robert F. & Russell, Jeffrey R., 1997. "Forecasting the frequency of changes in quoted foreign exchange prices with the autoregressive conditional duration model," Journal of Empirical Finance, Elsevier, vol. 4(2-3), pages 187-212, June.
    21. Plamen Ch. Ivanov & Ainslie Yuen & Boris Podobnik & Youngki Lee, 2004. "Common Scaling Patterns in Intertrade Times of U. S. Stocks," Papers cond-mat/0403662, arXiv.org.
    22. Chakrabarti, Anindya S. & Chakrabarti, Bikas K., 2010. "Statistical theories of income and wealth distribution," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 4, pages 1-31.
    23. Parisi, Giorgio, 1999. "Complex systems: a physicist's viewpoint," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 263(1), pages 557-564.
    24. Carl Chiarella & Xue-Zhong He & Cars Hommes, 2004. "A Dynamic Analysis of Moving Average Rules," Research Paper Series 133, Quantitative Finance Research Centre, University of Technology, Sydney.
    25. Silva, A. Christian & Yakovenko, Victor M., 2007. "Stochastic volatility of financial markets as the fluctuating rate of trading: An empirical study," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 382(1), pages 278-285.
    26. Jean-Philippe Bouchaud & Marc Mezard & Marc Potters, 2002. "Statistical properties of stock order books: empirical results and models," Quantitative Finance, Taylor & Francis Journals, vol. 2(4), pages 251-256.
    27. Michael McAleer & Marcelo Medeiros, 2008. "Realized Volatility: A Review," Econometric Reviews, Taylor & Francis Journals, vol. 27(1-3), pages 10-45.
    28. Benoit Mandelbrot, 1963. "The Variation of Certain Speculative Prices," The Journal of Business, University of Chicago Press, vol. 36, pages 394.
    29. Giovanni Bonanno & Fabrizio Lillo & Rosario N. Mantegna, 2000. "High-frequency Cross-correlation in a Set of Stocks," Papers cond-mat/0009350, arXiv.org, revised Nov 2000.
    30. Jean-Michel Courtault & Yuri Kabanov & Bernard Bru & Pierre Crépel & Isabelle Lebon & Arnaud Le Marchand, 2000. "Louis Bachelier on the Centenary of "Théorie de la Spéculation"," Mathematical Finance, Wiley Blackwell, vol. 10(3), pages 339-353.
    31. Parameswaran Gopikrishnan & Martin Meyer & Luis A Nunes Amaral & H Eugene Stanley, 1998. "Inverse Cubic Law for the Probability Distribution of Stock Price Variations," Papers cond-mat/9803374, arXiv.org, revised May 1998.
    32. Pagan, Adrian, 1996. "The econometrics of financial markets," Journal of Empirical Finance, Elsevier, vol. 3(1), pages 15-102, May.
    33. Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 141-183, Spring.
    34. Boris Podobnik & Plamen Ch. Ivanov & Youngki Lee & Alessandro Chessa & H. Eugene Stanley, 1999. "Systems with Correlations in the Variance: Generating Power-Law Tails in Probability Distributions," Papers cond-mat/9910433, arXiv.org, revised May 2000.
    35. Xavier Gabaix, 2008. "Power Laws in Economics and Finance," NBER Working Papers 14299, National Bureau of Economic Research, Inc.
    36. Potters, Marc & Bouchaud, Jean-Philippe, 2003. "More statistical properties of order books and price impact," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 133-140.
    37. Onnela, J.-P. & Chakraborti, A. & Kaski, K. & Kertész, J., 2003. "Dynamic asset trees and Black Monday," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 247-252.
    38. Wyart, Matthieu & Bouchaud, Jean-Philippe, 2007. "Self-referential behaviour, overreaction and conventions in financial markets," Journal of Economic Behavior & Organization, Elsevier, vol. 63(1), pages 1-24, May.
    39. Pierre Cizeau & Marc Potters & Jean-Philippe Bouchaud, 2000. "Correlation structure of extreme stock returns," Science & Finance (CFM) working paper archive 0006034, Science & Finance, Capital Fund Management.
    40. Jim Griffin & Roel Oomen, 2008. "Sampling Returns for Realized Variance Calculations: Tick Time or Transaction Time?," Econometric Reviews, Taylor & Francis Journals, vol. 27(1-3), pages 230-253.
    41. P. Cizeau & M. Potters & J-P. Bouchaud, 2001. "Correlation structure of extreme stock returns," Quantitative Finance, Taylor & Francis Journals, vol. 1(2), pages 217-222.
    42. Maria Elvira Mancino & Paul Malliavin, 2002. "Fourier series method for measurement of multivariate volatilities," Finance and Stochastics, Springer, vol. 6(1), pages 49-61.
    43. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
    44. Rosario Nunzio Mantegna, 2005. "Presentation of the English translation of Ettore Majorana's paper: The value of statistical laws in physics and social sciences," Quantitative Finance, Taylor & Francis Journals, vol. 5(2), pages 133-140.
    45. Politi, Mauro & Scalas, Enrico, 2008. "Fitting the empirical distribution of intertrade durations," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(8), pages 2025-2034.
    46. R. Cont, 2001. "Empirical properties of asset returns: stylized facts and statistical issues," Quantitative Finance, Taylor & Francis Journals, vol. 1(2), pages 223-236.
    47. Hasbrouck, Joel, 2007. "Empirical Market Microstructure: The Institutions, Economics, and Econometrics of Securities Trading," OUP Catalogue, Oxford University Press, number 9780195301649.
    48. Liu, Yanhui & Cizeau, Pierre & Meyer, Martin & Peng, C.-K. & Eugene Stanley, H., 1997. "Correlations in economic time series," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 245(3), pages 437-440.
    49. Glosten, Lawrence R, 1994. " Is the Electronic Open Limit Order Book Inevitable?," Journal of Finance, American Finance Association, vol. 49(4), pages 1127-61, September.
    50. Biais, Bruno & Hillion, Pierre & Spatt, Chester, 1995. " An Empirical Analysis of the Limit Order Book and the Order Flow in the Paris Bourse," Journal of Finance, American Finance Association, vol. 50(5), pages 1655-89, December.
    51. Dremin, I.M. & Leonidov, A.V., 2005. "On distribution of number of trades in different time windows in the stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 353(C), pages 388-402.
    52. Heston, Steven L, 1993. "A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options," Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 327-43.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:taf:quantf:v:11:y:2011:i:7:p:991-1012. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.