Applications of Statistical Physics in Finance and Economics

Lux, Thomas

doi:10.4337/9781781952665.00017

Cited by 51 publications

(60 citation statements)

References 156 publications

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“…This article is a contribution in line with the recent research aiming to increase the dialogue between physicists (particularly econophysicists) and financial economists (Ausloos, 2001(Ausloos, , 2013Bouchaud, 2002;Bouchaud et al, 2002;Carbone et al, 2007;Chakrabarti & Chakraborti, 2010;Chen & Li, 2012;Durlauf, 2005Durlauf, , 2012Farmer & Lux, 2008;Gabaix, 2009;, 2016Keen, 2003;Lux, 2009;McCauley, 2006McCauley, , 2009McCauley et al, 2007;Sornette, 2014;Stanley & Plerou, 2001). Actually, a recent article by Sornette (2014) offers a titillating example of largely widespread confusions about the distinction between econophysics and financial economics.…”

Section: I) Introductionmentioning

confidence: 66%

On the “usual” misunderstandings between econophysics and finance: Some clarifications on modelling approaches and efficient market hypothesis

Ausloos

Jovanovic

Schınckus

2016

International Review of Financial Analysis

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In line with the recent research and debates about econophysics and financial economics, this article discusses on usual misunderstandings between the two disciplines in terms of modelling and basic hypotheses. In the literature devoted to econophysics, the methodology used by financial economists is frequently considered as a top-down approach (starting from a priori "first principles") while econophysicists rather present themselves as scholars working with a (empirical data prone) bottom-up approach. Although this dualist perspective is very common in the econophysics literature, this paper claims that the distinction is very confusing and does not permit to reveal the essence of the differences between finance and econophysics. The distinction between these two fields is mainly investigated here through the lens of the Efficient Market Hypothesis in order to show that, in substance, econophysics and financial economics tend to have a similar approach implying that the misunderstanding between these two fields at the modelling level can therefore be overstepped.JEL classification: G1, B4, B5

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Section: I) Introductionmentioning

confidence: 66%

On the “usual” misunderstandings between econophysics and finance: Some clarifications on modelling approaches and efficient market hypothesis

Ausloos

Jovanovic

Schınckus

2016

International Review of Financial Analysis

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“…Since the birth of econophysics, a huge literature has been published and many results have been provided in finance Gabaix, 2009;Lux, 2009;McCauley, 2009;McCauley et al, 2007;Potters & Bouchaud, 2003;Sornette, 2014). However, in spite of the numerous publications and of the econophysicists' conviction about their potential contributions to finance, this approach seems to have great difficulties for convincing financial economists.…”

Section: Introductionmentioning

confidence: 99%

Breaking down the barriers between econophysics and financial economics

Jovanovic

Schınckus

2016

International Review of Financial Analysis

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This article highlights the current misunderstanding between economists and econophysicists by adopting the financial economists' viewpoint in order to explain why the works developed by econophysicists are not recognized in finance. Because both communities do not share the same scientific culture, and for the other reasons developed in the article, economists often consider econophysics as a strictly empirical field without theoretical justification. This paper shows the opposite; it also tries to facilitate the dialogue between econophysicists who often do not explain in details their theoretical roots and financial economists who are not familiar with statistical physics. Beyond this clarification, this paper also allows to identify what remains to be done for econophysicists to contribute significantly to financial economics: 1) development of a common framework\vocabulary in order to better compare and integrate the two approaches; 2) development of generative models explaining the emergence of power laws; and 3) development of statistical tests for the identification of such statistical regularities.JEL classification: G1, N2, B4, B5, B26

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“…see Foley (1994), Aoki (1998Aoki ( , 2004, Lux (2008), Yoshikawa (2011), Landini, Gallegati, andStiglitz (2014a), Landini, Gallegati, Stiglitz, Li, and Di Guilmi (2014b), among others. This type of work considers the state of the system from meso-level, and derives the dynamics of the system by depicting the transition rate with technique such as FokkerPlanck equation or master equation, which refers to an implicit application of the concept of transition matrix to depict the structural change on meso-level.…”

Section: Related Literaturementioning

confidence: 99%

Stock-Flow Dynamic Projection

Gallegati

2015

SSRN Journal

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Borrowing from our experience in agent-based computational economic research from 'bottom-up', this paper considers economic system as multilevel dynamical system that micro-level agents' interaction leads to structural transition in meso-level, which results in macro-level market dynamics with endogenous fluctuation or even market crashes. By the concept of transition matrix, we develop technique to quantify meso-level structural change induced by micro-level interaction. Then we apply this quantification to propose the method of dynamic projection that delivers outof-sample forecast of macro-level economic variable from micro-level big data. We testify this method with a data set of financial statements for 4599 firms listed in Tokyo Stock Exchange for the year of 1980 to 2012. The Diebold-Mariano test indicates that the dynamic projection has significantly higher accuracy for one-period-ahead out-of-sample forecast than the benchmark of ARIMA models.

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Applications of Statistical Physics in Finance and Economics

Cited by 51 publications

References 156 publications

On the “usual” misunderstandings between econophysics and finance: Some clarifications on modelling approaches and efficient market hypothesis

On the “usual” misunderstandings between econophysics and finance: Some clarifications on modelling approaches and efficient market hypothesis

Breaking down the barriers between econophysics and financial economics

Stock-Flow Dynamic Projection

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