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Econophysics — complex correlations and trend switchings in financial time series
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Preis, Tobias (2011) Econophysics — complex correlations and trend switchings in financial time series. The European Physical Journal Special Topics, Volume 194 (Number 1). pp. 5-86. doi:10.1140/epjst/e2011-01397-y
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Official URL: http://dx.doi.org/10.1140/epjst/e2011-01397-y
Abstract
This article focuses on the analysis of financial time series and their correlations. A method is used for quantifying pattern based correlations of a time series. With this methodology, evidence is found that typical behavioral patterns of financial market participants manifest over short time scales, i.e., that reactions to given price patterns are not entirely random, but that similar price patterns also cause similar reactions. Based on the investigation of the complex correlations in financial time series, the question arises, which properties change when switching from a positive trend to a negative trend. An empirical quantification by rescaling provides the result that new price extrema coincide with a significant increase in transaction volume and a significant decrease in the length of corresponding time intervals between transactions. These findings are independent of the time scale over 9 orders of magnitude, and they exhibit characteristics which one can also find in other complex systems in nature (and in physical systems in particular). These properties are independent of the markets analyzed. Trends that exist only for a few seconds show the same characteristics as trends on time scales of several months. Thus, it is possible to study financial bubbles and their collapses in more detail, because trend switching processes occur with higher frequency on small time scales. In addition, a Monte Carlo based simulation of financial markets is analyzed and extended in order to reproduce empirical features and to gain insight into their causes. These causes include both financial market microstructure and the risk aversion of market participants.
| Item Type: | Journal Article | ||||
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| Divisions: | Faculty of Social Sciences > Warwick Business School > Behavioural Science Faculty of Social Sciences > Warwick Business School |
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| Journal or Publication Title: | The European Physical Journal Special Topics | ||||
| Publisher: | Springer | ||||
| ISSN: | 1951-6355 | ||||
| Official Date: | March 2011 | ||||
| Dates: |
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| Volume: | Volume 194 | ||||
| Number: | Number 1 | ||||
| Number of Pages: | 81 | ||||
| Page Range: | pp. 5-86 | ||||
| DOI: | 10.1140/epjst/e2011-01397-y | ||||
| Status: | Peer Reviewed | ||||
| Publication Status: | Published | ||||
| Access rights to Published version: | Restricted or Subscription Access |
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