Stock market's physical properties description based on Stokes law

Geoffrey Ducournau

Papers from arXiv.org

Abstract: We propose in this paper to consider the stock market as a physical system assimilate to a fluid evolving in a macroscopic space subject to a Force that influences its movement over time where this last is arising from the collision between the supply and the demand of Financial agents. In fluid mechanics, this Force also results from the collisions of fluid molecules led by its physical property such as density, viscosity, and surface tension. The purpose of this article is to show that the dynamism of the stock market behavior can be explained qualitatively and quantitatively by considering the supply & demand collision as the result of Financial agents physical properties defined by Stokes Law. The first objective of this article is to show theoretically that fluid mechanics equations can be used to describe stock market physical properties. The second objective based on the knowledge of stock market physical properties is to propose an Econophysics analog of the stock market viscosity and Reynolds number to measure stock market conditions, whether laminar, transitory, or turbulent. The Reynolds Number defined in this way can be applied in research into the study and classification of stock market dynamics phases through for instance the creation of Econophysics analog of Moddy diagram, this last could be seen as a physical way to quantify asset and stock index idiosyncratic risk. The last objective is to present evidence from a computer simulation that the stock market behavior can be a priori, and posteriori explained by physical properties (viscosity & density) quantifiable by fluid mechanics law (Stokes law) and measurable with the stock market Reynolds Number.

Date: 2021-02
New Economics Papers: this item is included in nep-fmk
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