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A statistical physics perspective on criticality in financial markets

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  • Thomas Bury

Abstract

Stock markets are complex systems exhibiting collective phenomena and particular features such as synchronization, fluctuations distributed as power-laws, non-random structures and similarity to neural networks. Such specific properties suggest that markets operate at a very special point. Financial markets are believed to be critical by analogy to physical systems but few statistically founded evidence have been given. Through a data-based methodology and comparison to simulations inspired by statistical physics of complex systems, we show that the Dow Jones and indices sets are not rigorously critical. However, financial systems are closer to the criticality in the crash neighborhood.

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  • Thomas Bury, 2013. "A statistical physics perspective on criticality in financial markets," Papers 1310.2446, arXiv.org, revised Jan 2014.
  • Handle: RePEc:arx:papers:1310.2446
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    References listed on IDEAS

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    1. Iacopo Mastromatteo & Matteo Marsili, 2011. "On the criticality of inferred models," Papers 1102.1624, arXiv.org, revised Sep 2011.
    2. Y. Shapira & D. Y. Kenett & E. Ben-Jacob, 2009. "The Index cohesive effect on stock market correlations," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 72(4), pages 657-669, December.
    3. D. Sornette, 2003. "Critical Market Crashes," Papers cond-mat/0301543, arXiv.org.
    4. W.-X. Zhou & D. Sornette, 2007. "Self-organizing Ising model of financial markets," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 55(2), pages 175-181, January.
    5. Thomas Bury, 2012. "Statistical pairwise interaction model of stock market," Papers 1206.4420, arXiv.org, revised Jan 2014.
    6. Vandewalle, N. & Boveroux, Ph. & Minguet, A. & Ausloos, M., 1998. "The crash of October 1987 seen as a phase transition: amplitude and universality," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 255(1), pages 201-210.
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