Scale invariance and universality of economic fluctuations

H.e Stanley, L.A.n Amaral, P Gopikrishnan and V Plerou

Physica A: Statistical Mechanics and its Applications, 2000, vol. 283, issue 1, 31-41

Abstract: In recent years, physicists have begun to apply concepts and methods of statistical physics to study economic problems, and the neologism “econophysics” is increasingly used to refer to this work. Much recent work is focused on understanding the statistical properties of time series. One reason for this interest is that economic systems are examples of complex interacting systems for which a huge amount of data exist, and it is possible that economic time series viewed from a different perspective might yield new results. This manuscript is a brief summary of a talk that was designed to address the question of whether two of the pillars of the field of phase transitions and critical phenomena – scale invariance and universality – can be useful in guiding research on economics. We shall see that while scale invariance has been tested for many years, universality is relatively less frequently discussed. This article reviews the results of two recent studies – (i) The probability distribution of stock price fluctuations: Stock price fluctuations occur in all magnitudes, in analogy to earthquakes – from tiny fluctuations to drastic events, such as market crashes. The distribution of price fluctuations decays with a power-law tail well outside the Lévy stable regime and describes fluctuations that differ in size by as much as eight orders of magnitude. (ii) Quantifying business firm fluctuations: We analyze the Computstat database comprising all publicly traded United States manufacturing companies within the years 1974–1993. We find that the distributions of growth rates is different for different bins of firm size, with a width that varies inversely with a power of firm size. Similar variation is found for other complex organizations, including country size, university research budget size, and size of species of bird populations.

Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:283:y:2000:i:1:p:31-41

DOI: 10.1016/S0378-4371(00)00256-9

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