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Insights into the macroscopic behavior of equity markets: Theory and application

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  • AlShelahi, Abdullah
  • Saigal, Romesh

Abstract

In this research, we propose a macroscopic model of the equity market based on the physics of fluid dynamics. We develop sensors triggered by certain properties of the macroscopic variables, density and velocity, that can alert regulators to abnormal activity. Fluid flow in physics will be used to measure the irregularities found in the behavior of financial markets. Testing the proposed sensors on the day of a flash crash suggests further investigation in this area.

Suggested Citation

  • AlShelahi, Abdullah & Saigal, Romesh, 2018. "Insights into the macroscopic behavior of equity markets: Theory and application," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 505(C), pages 778-793.
    • Handle: RePEc:eee:phsmap:v:505:y:2018:i:c:p:778-793
    DOI: 10.1016/j.physa.2018.03.074
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