The Application of Econophysics: Proceedings of the Second Nikkei Econophysics Symposium

343 Pages·2004·11.57 MB·English

by  H. E. Stanley

Springer Japan KK.
Hideki Takayasu (Ed.)
The Application of
Econophysics
Proceedings of the Second Nikk:ei
Econophysics Symposium
With 137 Figures
, Springer
Hideki Takayasu
Senior Researcher
Sony Computer Science Laboratories, Inc.
3-14-13 Higashi-Gotanda, Shinagawa-ku
Tokyo 141-0022, Japan
ISBN 978-4-431-67961-5
Library of Congress Cata\oging-in-Pub\ication Data
Nikkei Econophysics Symposium (2nd : 2002 : Tokyo, Japan)
The application of econophysics : proceedings of the Second Nikkei Econophysics
Symposium / Hideki Takayasu (ed.)
p. cm.
lnc\udes bibliographica\ references.
ISBN 978-4-431-67961-5 ISBN 978-4-431-53947-6 (eBook)
DOI 10.1007/978-4-431-53947-6
1. Finance--Statistica\ methods--Congresses. 2. Finance--Mathematica\
models--Congresses. 3. Statistica\ physics--Congresses. 1. Takayasu, Hideki, 1958-II.
TitIe.
HGl76.5.N55 2002
330'.01' 5195--dc22
2003065192
Printed on acid-free paper
© Springer Japan 2004
Originally published by Springer-Verlag Tokyo in 2004
Softcover reprint ofthe hardcover lst edition 2004
This work is subject to copyright. AII rights are reserved, whether the whole or part of the
material is concemed, specifically the rights oftranslation, reprinting, reuse ofilIustrations,
recitation, broadcasting, reproduction on microfilms or in other ways, and storage in data
banks.
The use ofregistered names, trademarks, etc. in this publication does not imply, even in the
absence of a specific statement, that such names are exempt from the relevant protective
laws and regulations and therefore free for general use.
Typesetting: Authors
SPIN: 10929506
Preface
The global economy is changing very rapidly, and new approaches to rebuilding
economies are attracting a great deal of attention. Econophysics is an exciting new
academic field in which economic phenomena are analyzed in a scientific manner
using data from the financial markets and corporations.
This book is the proceedings of the second Nikkei symposium, "Application of
Econophysics," held in Tokyo, November 12-14, 2002. In the first Nikkei
symposium on econophysics, held in November 2000 under the title "Empirical
Science of Financial Fluctuations," we established empirical laws based on
financial data. Many basic discoveries were reported in the proceedings of the
same title published in 2001 by Springer-Verlag.
As expected from the title of the second Nikkei symposium, the research trend
in that symposium was clearly directed to application. Predictability of markets,
investment strategies, and risk hedge methods were the hot topics. Also, there was
remarkable progress in basic studies on market characteristics, novel data analysis
methods, and theoretical models.
The symposium was supported by the Financial Markets Department, Bank of
Japan; the Economic and Social Research Institute, Cabinet Office, Government
of Japan; the Japan Center for Economic Research; the Physical Society of Japan;
and the Japan Association for Evolutionary Economics. On behalf of all
participants, I would like to thank those supporters, as well as the following
companies, without whose financial support the symposium would not have been
possible: The Bank of Tokyo-Mitsubishi, Ltd.; Hitachi, Ltd. Financial Technology
Consulting Center; Sony Computer Science Laboratories, Inc.; Kozo Keikaku
Engineering, Inc.; and the World Gold Council.
As the chief organizer, I am grateful for the cooperation of the organizers, H.E.
Stanley (Boston University), T. Shimizu (Bank of Japan), and Y. Kuratsu (RP
Tech). I would also like to thank the keynote speaker of the symposium, D.
Sornette. Special appreciation is extended to the members of the conference
secretariat, as represented by K. Suzuki, for their kindness and efficiency, and to
the staff of Springer-Verlag Tokyo, for editorial support. Finally, I would like to
thank all the authors for their contributions to this volume.
H. Takayasu
Tokyo 2003
v
Contents
Preface V
I. Market Properties
1-1 Basic Statistics
Economic Fluctuations and Statistical Physics: The Puzzle of Large
Fluctuations
H. E. Stanley, X. Gabaix, P. Gopikrishnan, and V. Plerou
3
Triangular Arbitrage in the Foreign Exchange Market
Y. Aiba, N. Hatano, H. Takayasu, K. Marumo, and T. Shimizu
18
Time-Scale Dependence of Correlations among Foreign Currencies
T. Mizuno, S. Kurihara, M. Takayasu, and H. Takayasu
24
Univariate and Multivariate Statistical Aspects of Equity Volatility
S. Micciche, F. Lillo, G Bonanno, and R. N. Mantegna
30
Time Dependent Correlations and Response in Stock Market Data and
Models
J. Kertesz, L. Kullmann, A. G Zawadowski, R. Karadi, and K. Kaski
43
Distributions and Long-Range Correlations in the Trading of US Stocks
P. Ch. Ivanov, A. Yuen, B. Podobnik, and Y. Lee
51
Time Evolution of Fractal Structure by Price-axis Scaling and Foreign
Exchange Intervention Operations
Y. Kumagai
58
Preliminary Study on the Fluctuations of Daily Returns in Stock Market
Based on Phase Transition Theory
T.Abe
64
Physical Properties of the Korean Stock Market
J. J.-L. Ting
70
Correlation Coefficients between Stocks and those Distributions of
Returns in the Tokyo Stock Exchange
K.Itoh
78
Epochs in Market Sector Index Data -Empirical or Optimistic?
G Keogh, S. Sharifi, H. Ruskin, and M. Crane
83
VII
VIII
1-2 Predictability
Volatility Fingerprints of Large Shocks: Endogenous Versus Exogenous
D. Sornette, Y. Malevergne, and J. -F. Muzy
91
Patterns of Speculation in Real Estate and Stocks
B. M. Roehner
103
Generalized Technical Analysis. Effects of Transaction Volume and Risk
M. Ausloos and K. Ivanova
117
Enhancement of the Prediction of Actual Market Prices by Modifying the
Regularity Structure of a Signal
L. M. Karimova and Y. B. Kuandykov
125
New Complex Approach to Market Price Predictions
M. I. Tribelsky
131
Inferring of Trade Direction by Imbalance from Intra-Day Data
G Okita, A. Oba, and H. Takayasu
137
Chaotic Structure in Intraday Data of JGB Futures Price
K. Hayashi
140
Trend Identification and Financial Trading Strategy by Using Stochastic
Trend Model with Markov Switching Slope Change and ARCH
M. Hakamata
146
Pairs-Trading Strategy: Empirical Analysis in Japanese Stock Market
M. Hakamata
150
1-3 New Methods
Self-Modulation Processes in Financial Markets
M. Takayasu
155
Deterministic and Stochastic Influences on Japan and US Stock and Foreign
Exchange Markets. A Fokker-Planck Approach
K. Ivanova, M. Ausloos, and H. Takayasu
161
First-Passage Problem in Foreign Exchange Rate
S. Kurihara, T. Mizuno, H. Takayasu, and M. Takayasu
169
The Analysis of Financial Time Series Data by Independent Component
Analysis
E. R. Pike and E. G Klepfish
174
IX
1-4 Various Markets
Modeling Highly Volatile and Seasonal Markets: Evidence from the Nord
Pool Electricity Market
R. Weron, I. Simonsen, and P. Wilman
182
Statistical Properties of Commodity Price Fluctuations
K. Matia, Y. Ashkenazy, L. A. N. Amaral, S. P. Goodwin, and H. E. Stanley
192
International Trade: Do Two Poles Attract Each Other?
L. Liang and J. Wang
198
Emergence of Power-Law Behaviors in Online Auctions
B. Kahng, I. Yang, H. Jeong, and A.-L. Barabasi
204
Econophysics vs Cardiophysics: The Dual Face of Multifractality
Z. R. Struzik
210
1-5 Models
If the World were a Village of 100 Traders
Y. Ohtaki and H. H. Hasegawa
217
Market Simulation Displaying Multifractality
K. Yamasaki and K. J. Mackin
223
Random Graph Herding Model -An Application for Emerging Country
Currency Markets -
M. Fukuhara and Y. Saruwatari
229
Multivariable Modeling on Complex Behavior of a Foreign Exchange Market
T. Suzuki, T. Ikeguchi, and M. Suzuki
235
Gibbs Measure and Markov Chain Modeling for Stock Markets
J. Maskawa
241
II. Other Topics
11-1 Income Distribution
Entropy in the Economy
P. K. Rawlings, D. Reguera, and H. Reiss
249
Investment Strategy Based on a Company Growth Model
T. Mizuno, S. Kurihara, M. Takayasu, and H. Takayasu
256
x
Growth and Fluctuations of Personal Income I
Y. Fujiwara, H. Aoyama, and W. Souma
262
Growth and Fluctuations of Personal (and Company's) Income II
H. Aoyama, Y. Fujiwara, and W. Souma
268
A Model of High Income Distribution
K. Yamamoto, S. Miyazima, R. K. Koshal, M. Koshal, and Y. Yamada
274
Ideal Gas-Like Distributions in Economics: Effects of Saving Propensity
B. K. Chakrabarti and A. Chatterjee
280
11-2 Company's Risks
Enterprise Money System -An Ultimate Risk Hedge
H. Takayasu
287
Visualization of Business Networks
W. Souma, Y. Fujiwara, and H. Aoyama
293
Bankruptcy Prediction Using Decision Tree
S. Aoki and Y. Hosonuma
299
Premium Forecasting of an Insurance Company
M. E. Fouladvand and A. Darooneh
303
11-3 Theories
A View from an Economist on Econo-physics
K. Hamada
310
A New Model of Labor Market Dynamics
M. Aoki and H. Yoshikawa
316
Formulating Social Interactions in Utility Theory of Economics
Y. Aruka
322
Collective Behaviour and Diversity in Economic Communities: Some
Insights from an Evolutionary Game
V. S. Borkar, S. Jain, and G. Rangarajan
330
A Complex Adaptive Model of Economic Production Networks
A. Ponzi, A. Yasutorni, and K. Kaneko
338
I. Market Properties
Economic Fluctuations and Statistical Physics:
The Puzzle of Large Fluctuations
H. E. Stanleyl Xavier Gabaix2, Parameswaran Gopikrishnanl, and Vasiliki
Pleroul
1 Center for Polymer Studies, and Department of Physics, Boston University,
Boston, MA 02215 USA
2 Department of Economics, MIT, Cambridge, MA 02142 and National Bureau of
Economic Research, Cambridge, MA 02138
Abstract. We present an overview of recent research joining ideas of economic
theory and statistical physics to try to better understand puzzles regarding eco
nomic fluctuations. One of these puzzles is how to describe outliers, phenomena
that lie outside of patterns of statistical regularity. We review evidence consistent
with the possibility that such outliers may not exist. This possibility is supported
by recent analysis by Plerou et al. of a database containing the sale price of each
trade of every stock. Further, the data support the picture of economic fluctua
tions, due to Plerou et al., in which a financial market alternates between being
in an "equilibrium phase" where market behavior is split roughly equally between
buying and selling, and an "out-of-equilibrium phase" where the market is mainly
either buying or selling.
1 Introduction
Collaborations between economists and physicists seem to some observers to
be making progress in answering significant questions. In particular, these
collaborations have the potential to change the paradigm for understanding
economic fluctuations. Until relatively recently, theories of economic fluctua
tions invoked the label of "outlier" (bubbles and crashes) to describe fluctu
ations that do not agree with existing theory. These outliers are of interest,
as they correspond to extremely large and unpredictable changes of sufficient
magnitude to wreak havoc.
The paradigm of "statistical regularity plus outliers" does not exist in the
physical sciences. Indeed, if events occur that do not conform to predictions
of the appropriate theory, then that theory is immediately relegated to the
dust bin and new theories are sought. An example are the "outliers" that
led to the demise of classical mechanics, eventually replaced by the theory of
relativity.
Traditional economic theory does not predict outliers, but recent analy
sis of truly huge quantities of empirical data suggests that classic theories
not only fail for a few outliers, but that there occur similar outliers of ev
ery possible size. In fact, if one analyzes only a small data set (say 104 data
H. Takayasu (ed.), The Application of Econophysics
© Springer Japan 2004
3