Financial Time Series: A Physics Perspective

Abstract. Physicists in the last few years have started applying concepts and methods of statistical physics to understand economic phenomena. The word "econophysics" is sometimes used to refer to this work. One reason for this interest is the fact that Economic systems such as financial markets are examples of complex interacting sys-tems for which a huge amount of data exist and it is possible that economic problems viewed from a different perspective might yield new results. This article reviews the results of a few recent phenomenological studies focussed on understanding the dis-tinctive statistical properties of financial time series. We discuss three recent results — (i) The probability distribution of stock price fluctuations: Stock price fluctuations occur in all magnitudes, in analogy to earthquakes — from tiny fluctuations to very drastic events, such as market crashes, eg., the crash of October 19th 1987, sometimes referred to as " Black Monday". The distribution of price fluctuations decays with a power-law tail well outside the Levy stable regime and describes fluctuations that dif-fer by as much as 8 orders of magnitude. In addition, this distribution preserves its functional form for fluctuations on time scales that differ by 3 orders of magnitude