DOI: 10.1209/0295-5075/87/18009
Phase-transition–like behaviour of information measures in financial markets
M. Harré and T. BossomaierCentre for Research in Complex Systems, Charles Sturt University - Bathurst, Australia and Centre for the Mind, University of Sydney - Sydney, Australia
mike@centreforthemind.com
received 1 February 2009; accepted in final form 29 June 2009; published July 2009
published online 24 July 2009
Abstract
We apply measures based on information theory to the analysis of day close equity prices traded on US stock markets over the 13-year interval from 1995 up until after the market crash of September 2008. We show that the mutual information between prices provides insight into the changing relationships between equities over a time period which includes three known market crashes and two events which have not previously been included in this type of study, one of which is related to the sub-prime meltdown starting in 2007. Specifically, the mutual information around market crashes shows behaviour typical of the phase transitions studied in condensed-matter physics, however similar but more extended peaks in mutual information are also observed at other times not associated with any known market crashes.
89.65.Gh - Economics; econophysics, financial markets, business and management.
89.70.Cf - Entropy and other measures of information.
89.75.Fb - Structures and organization in complex systems.
© EPLA 2009