Do Physical Analogies of Stock Market Crashes Make Sense?
Coker, Beau Jon.
2013
- The purpose of this thesis is to critique the analogy between physical systems and stock market crashes. We do this by calculating the intraday correlations between a collection of stocks over the past 20 years and the intrahour correlations over a few particular years. Comparing these results to Monte Carlo simulations of a generic condensed matter system, the Ising model, we find that stocks do ... read morenot exhibit the same correlation features imposed by the dimension of the lattice of the Ising model, suggesting that a measure of distance between stocks does not exist. Rather, the results resemble a Zero-dimensional Ising model. An investigation of the properties of such a model one that has not been systematically analyzed in condensed matter physics as there is no physical interpretation will provide several interesting policy implications, including that stock market crashes may depend on market size. We will also expand the analysis of Kiyono et al. by analyzing the critical behavior of the S&P 500 over the past 30 years.read less
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