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Recent Trends and Developments in Econophysics

A special issue of Entropy (ISSN 1099-4300). This special issue belongs to the section "Multidisciplinary Applications".

Deadline for manuscript submissions: closed (30 June 2023) | Viewed by 25163

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Guest Editor
Department of Physics University of Thessaloniki GR-54124 Thessaloniki, Greece
Interests: theoretical condensed matter physics; networks; large-scale computer simulation techniques

Special Issue Information

Dear colleagues:

It is now a period of almost 30 years since physicists started to be involved in economics, something that would be unheard of a generation before that. In this period, a wealth of new information and new interpretations have come to the forefront; consequently, our understanding of financial systems has been greatly improved. This has happened by the use of big data in the financial markets, in our effort to explain the origin of fluctuations in the economy, in just about every aspect and instrument, be it stock prices, interest rates, foreign exchange, commodities, cryptocurrencies, their derivatives, and every other instrument available today for trading.

In this realm, a large number of problems are still unsolved and generate continued interest. The most eminent is the occurrence of rare events, which in financial markets show up as extreme fluctuations that happen only a very small number of times in a century. Is it possible to predict these? Is it possible to uncover indicative precursors? What constitutes a bubble? How successful are the existing theories? In this spirit, topics to be included in this Special Issue will cover the most recent advances in econophysics that encompass the following areas:

  • Agent-based models in economics and finance;
  • Big data mining and analysis in socio-economic systems;
  • Computational and experimental finance;
  • Derivative pricing, financial engineering, and hedging strategies;
  • Evolutionary game theory and evolutionary economics;
  • Financial bubbles and regime shifts in economic and social systems;
  • Market dynamics, macroscopic models, and prediction;
  • Market microstructure;
  • Networks and multilayer networks in economics and finance;
  • Non-additive entropy and non-extensive statistical mechanics in socio-economic systems;
  • Random matrix theory applications in finance;
  • Social mobility and economic inequality;
  • Statistical and probabilistic methods in economics and finance;
  • Systemic risk and risk management;
  • Financial technology;
  • Sharing economy;
  • Cryptocurrencies;
  • Economic complexity.

This Special Issue is focused on the most recent developments in these areas, aiming to generate new questions, create a forum for discussions and presentations in conferences, and inspire new projects related to the use of statistical physics methods in finance, within the realm of complex systems. Besides the models, emphasis is given to the use of real data, especially “big data” in economics.

Prof. Dr. Panos Argyrakis
Guest Editor

Manuscript Submission Information

Manuscripts should be submitted online at www.mdpi.com by registering and logging in to this website. Once you are registered, click here to go to the submission form. Manuscripts can be submitted until the deadline. All submissions that pass pre-check are peer-reviewed. Accepted papers will be published continuously in the journal (as soon as accepted) and will be listed together on the special issue website. Research articles, review articles as well as short communications are invited. For planned papers, a title and short abstract (about 100 words) can be sent to the Editorial Office for announcement on this website.

Submitted manuscripts should not have been published previously, nor be under consideration for publication elsewhere (except conference proceedings papers). All manuscripts are thoroughly refereed through a single-blind peer-review process. A guide for authors and other relevant information for submission of manuscripts is available on the Instructions for Authors page. Entropy is an international peer-reviewed open access monthly journal published by MDPI.

Please visit the Instructions for Authors page before submitting a manuscript. The Article Processing Charge (APC) for publication in this open access journal is 2600 CHF (Swiss Francs). Submitted papers should be well formatted and use good English. Authors may use MDPI's English editing service prior to publication or during author revisions.

Keywords

  • econophysics
  • economic complexity
  • financial networks
  • computational and experimental finance
  • risk analysis
  • economic inequality
  • income distribution
  • financial bubbles
  • big data
  • cryptocurrencies

Published Papers (13 papers)

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Research

22 pages, 2107 KiB  
Article
Transaction Entropy: An Alternative Metric of Market Performance
by Hua Zhong, Xiaohao Liang and Yougui Wang
Entropy 2023, 25(8), 1140; https://doi.org/10.3390/e25081140 - 30 Jul 2023
Viewed by 1218
Abstract
Market uncertainty has a significant impact on market performance. Previous studies have dedicated much effort towards investigations into market uncertainty related to information asymmetry and risk. However, they have neglected the uncertainty inherent in market transactions, which is also an important aspect of [...] Read more.
Market uncertainty has a significant impact on market performance. Previous studies have dedicated much effort towards investigations into market uncertainty related to information asymmetry and risk. However, they have neglected the uncertainty inherent in market transactions, which is also an important aspect of market performance, besides the quantity of transactions and market efficiency. In this paper, we put forward a concept of transaction entropy to measure market uncertainty and see how it changes with price. Transaction entropy is defined as the ratio of the total information entropy of all traders to the quantity of transactions, reflecting the level of uncertainty in making successful transactions. Based on the computational and simulated results, our main finding is that transaction entropy is the lowest at equilibrium, it will decrease in a shortage market, and increase in a surplus market. Additionally, we make a comparison of the total entropy of the centralized market with that of the decentralized market, revealing that the price-filtering mechanism could effectively reduce market uncertainty. Overall, the introduction of transaction entropy enriches our understanding of market uncertainty and facilitates a more comprehensive assessment of market performance. Full article
(This article belongs to the Special Issue Recent Trends and Developments in Econophysics)
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17 pages, 4629 KiB  
Article
A Goodwin Model Modification and Its Interactions in Complex Networks
by Francisco Yáñez Rodríguez and Alberto P. Muñuzuri
Entropy 2023, 25(6), 894; https://doi.org/10.3390/e25060894 - 2 Jun 2023
Cited by 2 | Viewed by 1460
Abstract
The global economy cannot be understood without the interaction of smaller-scale economies. We addressed this issue by considering a simplified economic model that still preserves the basic features, and analyzed the interaction of a set of such economies and the collective emerging dynamic. [...] Read more.
The global economy cannot be understood without the interaction of smaller-scale economies. We addressed this issue by considering a simplified economic model that still preserves the basic features, and analyzed the interaction of a set of such economies and the collective emerging dynamic. The topological structure of the economies’ network appears to correlate with the collective properties observed. In particular, the strength of the coupling between the different networks as well as the specific connectivity of each node happen to play a crucial role in the determination of the final state. Full article
(This article belongs to the Special Issue Recent Trends and Developments in Econophysics)
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31 pages, 12091 KiB  
Article
Laplacian Spectra of Persistent Structures in Taiwan, Singapore, and US Stock Markets
by Peter Tsung-Wen Yen, Kelin Xia and Siew Ann Cheong
Entropy 2023, 25(6), 846; https://doi.org/10.3390/e25060846 - 25 May 2023
Cited by 3 | Viewed by 1577
Abstract
An important challenge in the study of complex systems is to identify appropriate effective variables at different times. In this paper, we explain why structures that are persistent with respect to changes in length and time scales are proper effective variables, and illustrate [...] Read more.
An important challenge in the study of complex systems is to identify appropriate effective variables at different times. In this paper, we explain why structures that are persistent with respect to changes in length and time scales are proper effective variables, and illustrate how persistent structures can be identified from the spectra and Fiedler vector of the graph Laplacian at different stages of the topological data analysis (TDA) filtration process for twelve toy models. We then investigated four market crashes, three of which were related to the COVID-19 pandemic. In all four crashes, a persistent gap opens up in the Laplacian spectra when we go from a normal phase to a crash phase. In the crash phase, the persistent structure associated with the gap remains distinguishable up to a characteristic length scale ϵ* where the first non-zero Laplacian eigenvalue changes most rapidly. Before ϵ*, the distribution of components in the Fiedler vector is predominantly bi-modal, and this distribution becomes uni-modal after ϵ*. Our findings hint at the possibility of understanding market crashs in terms of both continuous and discontinuous changes. Beyond the graph Laplacian, we can also employ Hodge Laplacians of higher order for future research. Full article
(This article belongs to the Special Issue Recent Trends and Developments in Econophysics)
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35 pages, 1600 KiB  
Article
Local Phase Transitions in a Model of Multiplex Networks with Heterogeneous Degrees and Inter-Layer Coupling
by Nedim Bayrakdar, Valerio Gemmetto and Diego Garlaschelli
Entropy 2023, 25(5), 828; https://doi.org/10.3390/e25050828 - 22 May 2023
Viewed by 1160
Abstract
Multilayer networks represent multiple types of connections between the same set of nodes. Clearly, a multilayer description of a system adds value only if the multiplex does not merely consist of independent layers. In real-world multiplexes, it is expected that the observed inter-layer [...] Read more.
Multilayer networks represent multiple types of connections between the same set of nodes. Clearly, a multilayer description of a system adds value only if the multiplex does not merely consist of independent layers. In real-world multiplexes, it is expected that the observed inter-layer overlap may result partly from spurious correlations arising from the heterogeneity of nodes, and partly from true inter-layer dependencies. It is therefore important to consider rigorous ways to disentangle these two effects. In this paper, we introduce an unbiased maximum entropy model of multiplexes with controllable intra-layer node degrees and controllable inter-layer overlap. The model can be mapped to a generalized Ising model, where the combination of node heterogeneity and inter-layer coupling leads to the possibility of local phase transitions. In particular, we find that node heterogeneity favors the splitting of critical points characterizing different pairs of nodes, leading to link-specific phase transitions that may, in turn, increase the overlap. By quantifying how the overlap can be increased by increasing either the intra-layer node heterogeneity (spurious correlation) or the strength of the inter-layer coupling (true correlation), the model allows us to disentangle the two effects. As an application, we show that the empirical overlap observed in the International Trade Multiplex genuinely requires a nonzero inter-layer coupling in its modeling, as it is not merely a spurious result of the correlation between node degrees across different layers. Full article
(This article belongs to the Special Issue Recent Trends and Developments in Econophysics)
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12 pages, 329 KiB  
Article
Entropy of Financial Time Series Due to the Shock of War
by Ewa A. Drzazga-Szczȩśniak, Piotr Szczepanik, Adam Z. Kaczmarek and Dominik Szczȩśniak
Entropy 2023, 25(5), 823; https://doi.org/10.3390/e25050823 - 21 May 2023
Cited by 4 | Viewed by 1425
Abstract
The concept of entropy is not uniquely relevant to the statistical mechanics but, among others, it can play pivotal role in the analysis of a time series, particularly the stock market data. In this area, sudden events are especially interesting as they describe [...] Read more.
The concept of entropy is not uniquely relevant to the statistical mechanics but, among others, it can play pivotal role in the analysis of a time series, particularly the stock market data. In this area, sudden events are especially interesting as they describe abrupt data changes with potentially long-lasting effects. Here, we investigate the impact of such events on the entropy of financial time series. As a case study, we assume data of the Polish stock market, in the context of its main cumulative index, and discuss it for the finite time periods before and after outbreak of the 2022 Russian invasion of Ukraine. This analysis allows us to validate the entropy-based methodology in assessing changes in the market volatility, as driven by the extreme external factors. We show that some qualitative features of such market variations can be well captured in terms of the entropy. In particular, the discussed measure appears to highlight differences between data of the two considered timeframes in agreement with the character of their empirical distributions, which is not always the case in terms of the conventional standard deviation. Moreover, the entropy of cumulative index averages, qualitatively, the entropies of composing assets, suggesting capability for describing interdependencies between them. The entropy is also found to exhibit signatures of the upcoming extreme events. To this end, the role of recent war in shaping the current economic situation is briefly discussed. Full article
(This article belongs to the Special Issue Recent Trends and Developments in Econophysics)
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19 pages, 5540 KiB  
Article
Organizational Labor Flow Networks and Career Forecasting
by Frank Webb, Daniel Stimpson, Miesha Purcell and Eduardo López
Entropy 2023, 25(5), 784; https://doi.org/10.3390/e25050784 - 11 May 2023
Cited by 1 | Viewed by 1502
Abstract
The movement of employees within an organization is a research area of great relevance in a variety of fields such as economics, management science, and operations research, among others. In econophysics, however, only a few initial incursions have been made into this problem. [...] Read more.
The movement of employees within an organization is a research area of great relevance in a variety of fields such as economics, management science, and operations research, among others. In econophysics, however, only a few initial incursions have been made into this problem. In this paper, based on an approach inspired by the concept of labor flow networks which capture the movement of workers among firms of entire national economies, we construct empirically calibrated high-resolution networks of internal labor markets with nodes and links defined on the basis of different descriptions of job positions, such as operating units or occupational codes. The model is constructed and tested for a dataset from a large U.S. government organization. Using two versions of Markov processes, one without and another with limited memory, we show that our network descriptions of internal labor markets have strong predictive power. Among the most relevant findings, we observe that the organizational labor flow networks created by our method based on operational units possess a power law feature consistent with the distribution of firm sizes in an economy. This signals the surprising and important result that this regularity is pervasive across the landscape of economic entities. We expect our work to provide a novel approach to study careers and help connect the different disciplines that currently study them. Full article
(This article belongs to the Special Issue Recent Trends and Developments in Econophysics)
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10 pages, 711 KiB  
Article
Multi-Criteria Analysis of Startup Investment Alternatives Using the Hierarchy Method
by Tamara Kyrylych and Yuriy Povstenko
Entropy 2023, 25(5), 723; https://doi.org/10.3390/e25050723 - 27 Apr 2023
Cited by 2 | Viewed by 1500
Abstract
In this paper, we discuss the use of multi-criteria analysis for investment alternatives as a rational, transparent, and systematic approach that reveals the decision-making process during a study of influences and relationships in complex organizational systems. It is shown that this approach considers [...] Read more.
In this paper, we discuss the use of multi-criteria analysis for investment alternatives as a rational, transparent, and systematic approach that reveals the decision-making process during a study of influences and relationships in complex organizational systems. It is shown that this approach considers not only quantitative but also qualitative influences, statistical and individual properties of the object, and expert objective evaluation. We define the criteria for evaluating startup investment prerogatives, which are organized in thematic clusters (types of potential). To compare the investment alternatives, Saaty’s hierarchy method is used. As an example, the analysis of three startups is carried out based on the phase mechanism and Saaty’s analytic hierarchy process to identify investment appeal of startups according to their specific features. As a result, it is possible to diversify the risks of an investor through the allocation of resources between several projects, in accordance with the received vector of global priorities. Full article
(This article belongs to the Special Issue Recent Trends and Developments in Econophysics)
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18 pages, 2256 KiB  
Article
A Network Model Approach to International Aid
by Joe Scattergood and Steven Bishop
Entropy 2023, 25(4), 641; https://doi.org/10.3390/e25040641 - 11 Apr 2023
Viewed by 1436
Abstract
Decisions made by international aid donors regarding the allocation of their aid budgets to recipients can be mathematically modelled using network theory. The many countries and multilateral organisations providing developmental aid, mostly to developing countries, have numerous competing or conflicting interests, biases and [...] Read more.
Decisions made by international aid donors regarding the allocation of their aid budgets to recipients can be mathematically modelled using network theory. The many countries and multilateral organisations providing developmental aid, mostly to developing countries, have numerous competing or conflicting interests, biases and motivations, often obscured by a lack of transparency and confused messaging. Using network theory, combined with other mathematical methods, these inter-connecting and inter-dependent variables are identified, revealing the complicated properties and dynamics of the international aid system. Statistical techniques are applied to the vast amount of available, open data to first understand the complexities and then identify the key variables, focusing principally on bilateral aid flows. These results are used to create a weighted network model which is subsequently adapted for use by a hypothetical aid recipient. By incorporating modern portfolio theory into this weighted network model and taking advantage of a donor’s reasons for allocating their aid budgets to that recipient, a simulation is carried out treating the problem as an optimal investment portfolio of aid determinant ‘assets’ which illustrates how a recipient can maximise their aid receipts. Suggestions are also made for further uses and adaptations of this weighted network model. Full article
(This article belongs to the Special Issue Recent Trends and Developments in Econophysics)
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20 pages, 1103 KiB  
Article
The Risk Contagion between Chinese and Mature Stock Markets: Evidence from a Markov-Switching Mixed-Clayton Copula Model
by Hongli Niu, Kunliang Xu and Mengyuan Xiong
Entropy 2023, 25(4), 619; https://doi.org/10.3390/e25040619 - 6 Apr 2023
Cited by 2 | Viewed by 1313
Abstract
Exploring the risk spillover between Chinese and mature stock markets is a promising topic. In this study, we propose a Markov-switching mixed-Clayton (Ms-M-Clayton) copula model that combines a state transition mechanism with a weighted mixed-Clayton copula. It is applied to investigate the dynamic [...] Read more.
Exploring the risk spillover between Chinese and mature stock markets is a promising topic. In this study, we propose a Markov-switching mixed-Clayton (Ms-M-Clayton) copula model that combines a state transition mechanism with a weighted mixed-Clayton copula. It is applied to investigate the dynamic risk dependence between Chinese and mature stock markets in the Americas, Europe, and Asia–Oceania regions. Additionally, the conditional value at risk (CoVaR) is applied to analyze the risk spillovers between these markets. The empirical results demonstrate that there is mainly a time-varying but stable positive risk dependence structure between Chinese and mature stock markets, where the upside and downside risk correlations are asymmetric. Moreover, the risk contagion primarily spills over from mature stock markets to the Chinese stock market, and the downside effect is stronger. Finally, the risk contagion from Asia–Oceania to China is weaker than that from Europe and the Americas. The study provides insights into the risk association between emerging markets, represented by China, and mature stock markets in major regions. It is significant for investors and risk managers, enabling them to avoid investment risks and prevent risk contagion. Full article
(This article belongs to the Special Issue Recent Trends and Developments in Econophysics)
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11 pages, 1586 KiB  
Article
The Hurst Exponent as an Indicator to Anticipate Agricultural Commodity Prices
by Leticia Pérez-Sienes, Mar Grande, Juan Carlos Losada and Javier Borondo
Entropy 2023, 25(4), 579; https://doi.org/10.3390/e25040579 - 28 Mar 2023
Cited by 3 | Viewed by 1669
Abstract
Anticipating and understanding fluctuations in the agri-food market is very important in order to implement policies that can assure fair prices and food availability. In this paper, we contribute to the understanding of this market by exploring its efficiency and whether the local [...] Read more.
Anticipating and understanding fluctuations in the agri-food market is very important in order to implement policies that can assure fair prices and food availability. In this paper, we contribute to the understanding of this market by exploring its efficiency and whether the local Hurst exponent can help to anticipate its trend or not. We have analyzed the time series of the price for different agri-commodities and classified each day into persistent, anti-persistent, or white-noise. Next, we have studied the probability and speed to mean reversion for several rolling windows. We found that in general mean reversion is more probable and occurs faster during anti-persistent periods. In contrast, for most of the rolling windows we could not find a significant effect of persistence in mean reversion. Hence, we conclude that the Hurst exponent can help to anticipate the future trend and range of the expected prices in this market. Full article
(This article belongs to the Special Issue Recent Trends and Developments in Econophysics)
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23 pages, 1738 KiB  
Article
Extraction of Important Factors in a High-Dimensional Data Space: An Application for High-Growth Firms
by Takuya Wada, Hideki Takayasu and Misako Takayasu
Entropy 2023, 25(3), 488; https://doi.org/10.3390/e25030488 - 10 Mar 2023
Viewed by 1511
Abstract
We introduce a new non-black-box method of extracting multiple areas in a high-dimensional big data space where data points that satisfy specific conditions are highly concentrated. First, we extract one-dimensional areas where the data that satisfy specific conditions are mostly gathered by using [...] Read more.
We introduce a new non-black-box method of extracting multiple areas in a high-dimensional big data space where data points that satisfy specific conditions are highly concentrated. First, we extract one-dimensional areas where the data that satisfy specific conditions are mostly gathered by using the Bayesian method. Second, we construct higher-dimensional areas where the densities of focused data points are higher than the simple combination of the results for one dimension, and then we verify the results through data validation. Third, we apply this method to estimate the set of significant factors shared in successful firms with growth rates in sales at the top 1% level using 156-dimensional data of corporate financial reports for 12 years containing about 320,000 firms. We also categorize high-growth firms into 15 groups of different sets of factors. Full article
(This article belongs to the Special Issue Recent Trends and Developments in Econophysics)
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30 pages, 8912 KiB  
Article
Investigating Deep Stock Market Forecasting with Sentiment Analysis
by Charalampos M. Liapis, Aikaterini Karanikola and Sotiris Kotsiantis
Entropy 2023, 25(2), 219; https://doi.org/10.3390/e25020219 - 23 Jan 2023
Cited by 7 | Viewed by 4430
Abstract
When forecasting financial time series, incorporating relevant sentiment analysis data into the feature space is a common assumption to increase the capacities of the model. In addition, deep learning architectures and state-of-the-art schemes are increasingly used due to their efficiency. This work compares [...] Read more.
When forecasting financial time series, incorporating relevant sentiment analysis data into the feature space is a common assumption to increase the capacities of the model. In addition, deep learning architectures and state-of-the-art schemes are increasingly used due to their efficiency. This work compares state-of-the-art methods in financial time series forecasting incorporating sentiment analysis. Through an extensive experimental process, 67 different feature setups consisting of stock closing prices and sentiment scores were tested on a variety of different datasets and metrics. In total, 30 state-of-the-art algorithmic schemes were used over two case studies: one comparing methods and one comparing input feature setups. The aggregated results indicate, on the one hand, the prevalence of a proposed method and, on the other, a conditional improvement in model efficiency after the incorporation of sentiment setups in certain forecast time frames. Full article
(This article belongs to the Special Issue Recent Trends and Developments in Econophysics)
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18 pages, 733 KiB  
Article
Dependency Structures in Cryptocurrency Market from High to Low Frequency
by Antonio Briola and Tomaso Aste
Entropy 2022, 24(11), 1548; https://doi.org/10.3390/e24111548 - 28 Oct 2022
Cited by 4 | Viewed by 2165
Abstract
We investigate logarithmic price returns cross-correlations at different time horizons for a set of 25 liquid cryptocurrencies traded on the FTX digital currency exchange. We study how the structure of the Minimum Spanning Tree (MST) and the Triangulated Maximally Filtered Graph (TMFG) evolve [...] Read more.
We investigate logarithmic price returns cross-correlations at different time horizons for a set of 25 liquid cryptocurrencies traded on the FTX digital currency exchange. We study how the structure of the Minimum Spanning Tree (MST) and the Triangulated Maximally Filtered Graph (TMFG) evolve from high (15 s) to low (1 day) frequency time resolutions. For each horizon, we test the stability, statistical significance and economic meaningfulness of the networks. Results give a deep insight into the evolutionary process of the time dependent hierarchical organization of the system under analysis. A decrease in correlation between pairs of cryptocurrencies is observed for finer time sampling resolutions. A growing structure emerges for coarser ones, highlighting multiple changes in the hierarchical reference role played by mainstream cryptocurrencies. This effect is studied both in its pairwise realizations and intra-sector ones. Full article
(This article belongs to the Special Issue Recent Trends and Developments in Econophysics)
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