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Boltzmann Distribution and Temperature of Stock Markets

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  • H. Kleinert
  • X. J. Chen

Abstract

The minute fluctuations of of S&P 500 and NASDAQ 100 indices display Boltzmann statistics over a wide range of positive as well as negative returns, thus allowing us to define a {\em market temperature} for either sign. With increasing time the sharp Boltzmann peak broadens into a Gaussian whose volatility $ \sigma $ measured in $1/ \sqrt{{\rm min}}$ is related to the temperature $T$ by $T= \sigma / \sqrt{2}$. Plots over the years 1990--2006 show that the arrival of the 2000 crash was preceded by an increase in market temperature, suggesting that this increase can be used as a warning signal for crashes. A plot of the Dow Jones temperature over 78 years reveals a remarkable stability through many historical turmoils, interrupted only by short heat bursts near the crashes.

Suggested Citation

  • H. Kleinert & X. J. Chen, 2006. "Boltzmann Distribution and Temperature of Stock Markets," Papers physics/0609209, arXiv.org, revised Apr 2007.
    • Handle: RePEc:arx:papers:physics/0609209
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    Cited by:

    1. Christoph J. Borner & Ingo Hoffmann & John H. Stiebel, 2023. "On the Connection between Temperature and Volatility in Ideal Agent Systems," Papers 2303.15164, arXiv.org.
    2. 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.

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