Issue
EPL
Volume 87, Number 1, July 2009
Article Number 18009
Number of page(s) 5
Section Interdisciplinary Physics and Related Areas of Science and Technology
DOI http://dx.doi.org/10.1209/0295-5075/87/18009
Published online 24 July 2009
EPL, 87 (2009) 18009
DOI: 10.1209/0295-5075/87/18009

Phase-transition–like behaviour of information measures in financial markets

M. Harré and T. Bossomaier

Centre 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.

PACS
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