Linear response theory in stock markets

Abstract Linear response theory relates the response of a system to a weak external force with its dynamics in equilibrium, subjected to fluctuations. Here, this framework is applied to financial markets; in particular we study the dynamics of a set of stocks from the NASDAQ during the last 20 years...

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Autores principales:	Antonio M. Puertas, Juan E. Trinidad-Segovia, Miguel A. Sánchez-Granero, Joaquim Clara-Rahora, F. Javier de las Nieves
Formato:	article
Lenguaje:	EN
Publicado:	Nature Portfolio 2021
Materias:	Medicine R Science Q
Acceso en línea:	https://doaj.org/article/35bf57bf4d4342cd9be30c20cb3d4ba7
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spelling	oai:doaj.org-article:35bf57bf4d4342cd9be30c20cb3d4ba72021-12-05T12:14:57ZLinear response theory in stock markets10.1038/s41598-021-02263-62045-2322https://doaj.org/article/35bf57bf4d4342cd9be30c20cb3d4ba72021-11-01T00:00:00Zhttps://doi.org/10.1038/s41598-021-02263-6https://doaj.org/toc/2045-2322Abstract Linear response theory relates the response of a system to a weak external force with its dynamics in equilibrium, subjected to fluctuations. Here, this framework is applied to financial markets; in particular we study the dynamics of a set of stocks from the NASDAQ during the last 20 years. Because unambiguous identification of external forces is not possible, critical events are identified in the series of stock prices as sudden changes, and the stock dynamics following an event is taken as the response to the external force. Linear response theory is applied with the log-return as the conjugate variable of the force, providing predictions for the average response of the price and return, which agree with observations, but fails to describe the volatility because this is expected to be beyond linear response. The identification of the conjugate variable allows us to define the perturbation energy for a system of stocks, and observe its relaxation after an event.Antonio M. PuertasJuan E. Trinidad-SegoviaMiguel A. Sánchez-GraneroJoaquim Clara-RahoraF. Javier de las NievesNature PortfolioarticleMedicineRScienceQENScientific Reports, Vol 11, Iss 1, Pp 1-8 (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	Medicine R Science Q
spellingShingle	Medicine R Science Q Antonio M. Puertas Juan E. Trinidad-Segovia Miguel A. Sánchez-Granero Joaquim Clara-Rahora F. Javier de las Nieves Linear response theory in stock markets
description	Abstract Linear response theory relates the response of a system to a weak external force with its dynamics in equilibrium, subjected to fluctuations. Here, this framework is applied to financial markets; in particular we study the dynamics of a set of stocks from the NASDAQ during the last 20 years. Because unambiguous identification of external forces is not possible, critical events are identified in the series of stock prices as sudden changes, and the stock dynamics following an event is taken as the response to the external force. Linear response theory is applied with the log-return as the conjugate variable of the force, providing predictions for the average response of the price and return, which agree with observations, but fails to describe the volatility because this is expected to be beyond linear response. The identification of the conjugate variable allows us to define the perturbation energy for a system of stocks, and observe its relaxation after an event.
format	article
author	Antonio M. Puertas Juan E. Trinidad-Segovia Miguel A. Sánchez-Granero Joaquim Clara-Rahora F. Javier de las Nieves
author_facet	Antonio M. Puertas Juan E. Trinidad-Segovia Miguel A. Sánchez-Granero Joaquim Clara-Rahora F. Javier de las Nieves
author_sort	Antonio M. Puertas
title	Linear response theory in stock markets
title_short	Linear response theory in stock markets
title_full	Linear response theory in stock markets
title_fullStr	Linear response theory in stock markets
title_full_unstemmed	Linear response theory in stock markets
title_sort	linear response theory in stock markets
publisher	Nature Portfolio
publishDate	2021
url	https://doaj.org/article/35bf57bf4d4342cd9be30c20cb3d4ba7
work_keys_str_mv	AT antoniompuertas linearresponsetheoryinstockmarkets AT juanetrinidadsegovia linearresponsetheoryinstockmarkets AT miguelasanchezgranero linearresponsetheoryinstockmarkets AT joaquimclararahora linearresponsetheoryinstockmarkets AT fjavierdelasnieves linearresponsetheoryinstockmarkets
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Linear response theory in stock markets

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