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Dynamics of the price behavior in stock markets: A statistical physics approach

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  • Diep, Hung T.
  • Desgranges, Gabriel

Abstract

We study the time evolution of stock markets using a statistical physics approach. We consider an ensemble of agents who sell or buy a good according to several factors acting on them: the majority of the neighbors, the market atmosphere, the variation of the price and some specific measure applied at a given time. Each agent is represented by a spin having a number of discrete states q or continuous states, describing the tendency of the agent for buying or selling. The market atmosphere is represented by a parameter T which plays the role of the temperature in physics: low T corresponds to a calm market, high T to a turbulent one. We show that there is a critical value of T, say Tc, where strong fluctuations between individual states lead to a disordered situation in which there is no majority: the numbers of sellers and buyers are equal, namely the market clearing. The specific measure, by the government or by an economic organization, is parameterized by H applied on the market at the time t1 and removed at the time t2. We have used Monte Carlo simulations to study the time evolution of the price as functions of those parameters. In particular we show that the price strongly fluctuates near Tc and there exists a critical value Hc above which the boosting effect remains after H is removed. Our model replicates the stylized facts in finance (time-independent price variation), volatility clustering (time-dependent dynamics) and persistent effect of a temporary shock. The second part of the paper deals with the price variation using a time-dependent mean-field theory. By supposing that the sellers and the buyers belong to two distinct communities with their characteristics different in both intra-group and inter-group interactions, we find the price oscillation with time. Results are shown and discussed.

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  • Diep, Hung T. & Desgranges, Gabriel, 2021. "Dynamics of the price behavior in stock markets: A statistical physics approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 570(C).
    • Handle: RePEc:eee:phsmap:v:570:y:2021:i:c:s0378437121000856
    DOI: 10.1016/j.physa.2021.125813
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