An Ising spin state explanation for financial asset allocation

Philip A. Horvath, Kelly R. Roos and Amit Sinha

Physica A: Statistical Mechanics and its Applications, 2016, vol. 445, issue C, 112-116

Abstract: We build on the developments in the application of statistical mechanics, notably the identity of the spin degree of freedom in the Ising model, to explain asset price dynamics in financial markets with a representative agent. Specifically, we consider the value of an individual spin to represent the proportional holdings in various assets. We use partial moment arguments to identify asymmetric reactions to information and develop an extension of a plunging and dumping model. This unique identification of the spin is a relaxation of the conventional discrete state limitation on an Ising spin to accommodate a new archetype in Ising model-finance applications wherein spin states may take on continuous values, and may evolve in time continuously, or discretely, depending on the values of the partial moments.

Keywords: Asset allocation; Ising model; Rational agents; Information (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:445:y:2016:i:c:p:112-116

DOI: 10.1016/j.physa.2015.10.064

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