Introduction to special issue on ‘Applications of Statistical Physics in Economics and Finance’

Farmer, J. Doyne; Lux, Thomas

doi:10.1016/j.jedc.2007.01.019

“…This article is a contribution in line with the recent research aiming to increase the dialogue between physicists (particularly econophysicists) and financial economists (Ausloos, 2001(Ausloos, , 2013Bouchaud, 2002;Bouchaud et al, 2002;Carbone et al, 2007;Chakrabarti & Chakraborti, 2010;Chen & Li, 2012;Durlauf, 2005Durlauf, , 2012Farmer & Lux, 2008;Gabaix, 2009;, 2016Keen, 2003;Lux, 2009;McCauley, 2006McCauley, , 2009McCauley et al, 2007;Sornette, 2014;Stanley & Plerou, 2001). Actually, a recent article by Sornette (2014) offers a titillating example of largely widespread confusions about the distinction between econophysics and financial economics.…”

Section: I) Introductionmentioning

confidence: 65%

On the 'Usual' Misunderstandings between Econophysics and Finance: Some Clarifications on Modelling Approaches and Efficient Market Hypothesis

Ausloos

¹

,

Jovanovic

²

,

Schınckus

³

2018

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In line with the recent research and debates about econophysics and financial economics, this article discusses on usual misunderstandings between the two disciplines in terms of modelling and basic hypotheses. In the literature devoted to econophysics, the methodology used by financial economists is frequently considered as a top-down approach (starting from a priori "first principles") while econophysicists rather present themselves as scholars working with a (empirical data prone) bottom-up approach. Although this dualist perspective is very common in the econophysics literature, this paper claims that the distinction is very confusing and does not permit to reveal the essence of the differences between finance and econophysics. The distinction between these two fields is mainly investigated here through the lens of the Efficient Market Hypothesis in order to show that, in substance, econophysics and financial economics tend to have a similar approach implying that the misunderstanding between these two fields at the modelling level can therefore be overstepped.JEL classification: G1, B4, B5

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“…This article is a contribution in line with the recent research aiming to increase the dialogue between physicists (particularly econophysicists) and financial economists (Ausloos, 2001(Ausloos, , 2013Bouchaud, 2002;Bouchaud et al, 2002;Carbone et al, 2007;Chakrabarti & Chakraborti, 2010;Chen & Li, 2012;Durlauf, 2005Durlauf, , 2012Farmer & Lux, 2008;Gabaix, 2009;, 2016Keen, 2003;Lux, 2009;McCauley, 2006McCauley, , 2009McCauley et al, 2007;Sornette, 2014;Stanley & Plerou, 2001). Actually, a recent article by Sornette (2014) offers a titillating example of largely widespread confusions about the distinction between econophysics and financial economics.…”

Section: I) Introductionmentioning

confidence: 65%

On the “usual” misunderstandings between econophysics and finance: Some clarifications on modelling approaches and efficient market hypothesis

Ausloos

¹

,

Jovanovic

²

,

Schınckus

³

2016

International Review of Financial Analysis

View full text Add to dashboard Cite

In line with the recent research and debates about econophysics and financial economics, this article discusses on usual misunderstandings between the two disciplines in terms of modelling and basic hypotheses. In the literature devoted to econophysics, the methodology used by financial economists is frequently considered as a top-down approach (starting from a priori "first principles") while econophysicists rather present themselves as scholars working with a (empirical data prone) bottom-up approach. Although this dualist perspective is very common in the econophysics literature, this paper claims that the distinction is very confusing and does not permit to reveal the essence of the differences between finance and econophysics. The distinction between these two fields is mainly investigated here through the lens of the Efficient Market Hypothesis in order to show that, in substance, econophysics and financial economics tend to have a similar approach implying that the misunderstanding between these two fields at the modelling level can therefore be overstepped.JEL classification: G1, B4, B5

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“…Consequently, due to these differences, it is more difficult for econophysicists to get past the gatekeepers of financial economics journals. However, beyond this observation, we must stress that in recent years more and more joint publications (such as this special issue, for example) and research have been developed, taking part in bridging the gap between these two scientific cultures (Ausloos, 2001;Bouchaud, 2002;Carbone et al, 2007;Chakrabarti & Chakraborti, 2010;Chen & Li, 2012;Durlauf, 2005;Farmer & Lux, 2008;Gabaix, 2009;Keen, 2003;Lux, 2009;McCauley, 2006;Stanley & Plerou, 2001).…”

Section: Different Scientific Culturesmentioning

confidence: 94%

Breaking down the barriers between econophysics and financial economics

Jovanovic

¹

,

Schınckus

²

2016

International Review of Financial Analysis

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This article highlights the current misunderstanding between economists and econophysicists by adopting the financial economists' viewpoint in order to explain why the works developed by econophysicists are not recognized in finance. Because both communities do not share the same scientific culture, and for the other reasons developed in the article, economists often consider econophysics as a strictly empirical field without theoretical justification. This paper shows the opposite; it also tries to facilitate the dialogue between econophysicists who often do not explain in details their theoretical roots and financial economists who are not familiar with statistical physics. Beyond this clarification, this paper also allows to identify what remains to be done for econophysicists to contribute significantly to financial economics: 1) development of a common framework\vocabulary in order to better compare and integrate the two approaches; 2) development of generative models explaining the emergence of power laws; and 3) development of statistical tests for the identification of such statistical regularities.JEL classification: G1, N2, B4, B5, B26

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Introduction to special issue on ‘Applications of Statistical Physics in Economics and Finance’

Cited by 28 publications

References 16 publications

On the 'Usual' Misunderstandings between Econophysics and Finance: Some Clarifications on Modelling Approaches and Efficient Market Hypothesis

On the 'Usual' Misunderstandings between Econophysics and Finance: Some Clarifications on Modelling Approaches and Efficient Market Hypothesis

On the “usual” misunderstandings between econophysics and finance: Some clarifications on modelling approaches and efficient market hypothesis

Breaking down the barriers between econophysics and financial economics

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