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ORIGINAL RESEARCH article

Front. Phys.
Sec. Interdisciplinary Physics
Volume 12 - 2024 | doi: 10.3389/fphy.2024.1508465
This article is part of the Research Topic Advances in Nonlinear Systems and Networks, Volume III View all 3 articles

Self-Organization of the Stock Exchange to the Edge of a Phase Transition: Empirical and Theoretical Studies

Provisionally accepted
Andrey Dmitriev Andrey Dmitriev *Andrey Lebedev Andrey Lebedev Vasily Kornilov Vasily Kornilov Victor Dmitriev Victor Dmitriev
  • National Research University Higher School of Economics, Moscow, Russia

The final, formatted version of the article will be published soon.

    Our study is based on the hypothesis that stock exchanges, being nonlinear, open and dissipative systems, are capable of self-organization to the edge of a phase transition. To empirically support the hypothesis, we find segments in hourly stock volume series for 3000 stocks of publicly traded companies, corresponding to the time of stock exchange's stay to the edge of a phase transition. We provide a theoretical justification of the hypothesis and present a phenomenological model of stock exchange self-organization to the edge of the first-order phase transition and to the edge of the secondorder phase transition. In the model, the controlling parameter is entropy as a measure of uncertainty of information about a share of a public company, guided by which stock exchange players make a decision to buy/sell it. The order parameter is determined by the number of buy/sell transactions by stock exchange players of a public company's shares, i.e. stock's volume. The practical significance of our study is determined by the possibility of early warning of self-organization of stock exchanges to the edge of a phase transition. By applying statistical tests and the AUC metric, we found the most effective early warning measures from the set of investigated critical deceleration measures, multifractal measures and reconstructed phase space measures.

    Keywords: Phase Transition, self-organized criticality, Early warning signals, Sandpile cellular automata, Stock exchange, econophysical modeling, trading

    Received: 09 Oct 2024; Accepted: 24 Dec 2024.

    Copyright: © 2024 Dmitriev, Lebedev, Kornilov and Dmitriev. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

    * Correspondence: Andrey Dmitriev, National Research University Higher School of Economics, Moscow, Russia

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