Volume 87, Number 1, July 2009
|Number of page(s)||5|
|Section||Interdisciplinary Physics and Related Areas of Science and Technology|
|Published online||24 July 2009|
Phase-transition–like behaviour of information measures in financial markets
Centre for Research in Complex Systems, Charles Sturt University - Bathurst, Australia and Centre for the Mind, University of Sydney - Sydney, Australia
Corresponding author: firstname.lastname@example.org
Accepted: 29 June 2009
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
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