Correlated Randomness: Rare and Not-so-Rare Events in Finance

H. E. Stanley, Xavier Gabaix, Parameswaran Gopikrishnan and Vasiliki Plerou
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H. E. Stanley: Boston University
Parameswaran Gopikrishnan: Boston University
Vasiliki Plerou: Boston University

A chapter in Practical Fruits of Econophysics, 2006, pp 2-18 from Springer

Abstract: Abstract One challenge of economics is that the systems treated by these sciences have no perfect metronome in time and no perfect spatial architecture—crystalline or otherwise. Nonetheless, as if by magic, out of nothing but randomness one finds remarkably fine-tuned processes in time. To understand this “miracle,” one might consider placing aside the human tendency to see the universe as a machine. Instead, one might address the challenge of uncovering how, through randomness (albeit, as we shall see, strongly correlated randomness), one can arrive at many temporal patterns in economics. Inspired by principles developed by statistical physics over the past 50 years—scale invariance and universality—we review some recent applications of correlated randomness to economics.

Keywords: Random Walk; Stock Price; Mutual Fund; Fund Manager; Stock Index (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-4-431-28915-9_1

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DOI: 10.1007/4-431-28915-1_1

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