Special Issue "Three Risky Decades: A Time for Econophysics?"

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

Deadline for manuscript submissions: 29 October 2021.

Special Issue Editors

Prof. Dr. Ryszard Kutner
E-Mail
Guest Editor
Faculty of Physics, University of Warsaw, Pasteur Str. 5, PL-02093 Warsaw, Poland
Interests: statistical physics; physics of complexity; network science; econophysics and sociophysics; physics of life
Prof. Dr. Christophe Schinckus
E-Mail Website
Guest Editor
School of Business, University of the Fraser Valley, 33844 King Road, Abbotsford, BC V2S 7M8, Canada
Interests: finance; econophysics; complex systems; agent-based modeling; Anthropocene
Prof. Dr. H. Eugene Stanley
grade E-Mail Website
Guest Editor
Department of Physics, Boston University, 590 Commonwealth Ave, Boston, MA 02215, USA
Interests: interdisciplinary science; complex systems; econophysics; sociophysics; liquid water; nanoconfined and biological environments; correlations in Alzheimer brain; quantifying fluctuations in noncoding and coding DNA sequences; interbeat intervals of the healthy and diseased heart

Special Issue Information

Dear Colleagues,

There is a good reason for this Special Issue: next year will mark the third decade of a new way of dealing with economics through the lens of a physics-based approach. Since then, there has been an increasing number of publications (included in the Web of Science database) devoted to what is now called econophysics. The origin of this movement are complex and manifold. A possible catalyst for this increase is the famous conference at the Santa Fe Institute in 1987, organized by two Nobel Prize winners—economist Kenneth Arrow and physicist Philip Anderson. The purpose of this event was to see how economics could benefit from physics, computer science, and biology. Econophysics may be related to the ground-breaking work (“Lévy walks and enhanced diffusion in Milan stock exchange”) written by the physicist Rosario N. Mantegna in 1991—this article, considered by many to be the beginning of modern econophysics, showed that we had entered in an era of extreme and rare events as we experience it almost every day. In addition to these potential origins, other important works also contribute to the development of research related to econophysics: among others, one can quote, “Statistical properties of deterministic threshold elements—the case of market price” by H. Takayasu, H. Miura, T. Hirabayashi, K. Hamada in Physica A (1992), or “The Black-Scholes option pricing problem in mathematical finance: Generalization and extensions for a large class of stochastic processes”, by J.-P. Bouchaud and D. Sornette in J. Phys. I France (1994). We have just cited some of these works here, realizing that this is a subjective selection that reflects our point of view. In this Special Issue, all perspectives on econophysics are welcome, even though they might generate controversial discussions or opposite viewpoints. The authors will have the opportunity to put forth their way of presenting and working with econophysics.

The new era evoked above cannot be characterized through the classical Brownian and Gaussian behavior (Wiener process) originally discovered by Louis Bachelier in his dissertation (“Théorie de la Spéculation” in 1900); instead, the statistical characterization of our contemporary world is more in line with a Lévy flight process over multiple timescales identified by Mantegna in his article on the Milan Index mentioned above. In this context, the central limit theorem has been replaced by the Lévy–Khintchine generalized central limit theorem. These findings have been confirmed by later works—see Mantegna-Stanley in Nature (1995). In a short period of time, an avalanche of publications created an apparently impossible bridge between physics and social sciences (especially financial markets). In this Special Issue, eminent scholars have been invited, all of whom have significantly contributed to econophysics. We hope their writings will illustrate and exemplify the history of econophysics, the current trends in the field, as well as its future perspectives. We voluntarily keep open the scope of this Issue leaving to the authors’ decision what they consider to be the milestones of econophysics and how they see its future. We want econophysics to be presented from different points of view, even though these views might be contradictory or sources of internal scientific tensions. Our work “Econophysics and sociophysics: Their milestones & challenges’ in Physica A (2019) can be used as a source of inspiration for the celebration of the development of econophysics. As Guest Editors, we believe that the Special Issue will be scientifically attractive and inspiring. The 30th anniversary is in opportunity to show econophysics as a living and developing field of science related to many other fields. This Special Issue does not aim to be a museum but instead an inspiring collection of writings opening up prospects for the future of the field.

This Special Issue is also a way to present econophysics to the general public and to scholars who are external to the field: its achievements, its challenges, and even the controversial opinions/internal tensions and sometimes contradictions that might have emerged in the field. As Guest Editors, we are keen to show that econophysics is alive and inspiring—especially in the context of the global challenges with which we are faced.

Prof. Dr. Ryszard Kutner
Prof. Dr. Christophe Schinckus
Prof. Dr. H. Eugene Stanley
Guest Editors

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 papers will be 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 1800 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

  • risk
  • correlations, complexity and entropy
  • multiscaling and multifractality
  • extreme rare events
  • superextreme events
  • dynamics of complex networks
  • income and wealth
  • agent-based and order book modeling
  • observational econophysics
  • physical economics
  • macroeconophysics
  • markets
  • banking
  • games

Published Papers (12 papers)

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Research

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Article
Plotting the Words of Econophysics
Entropy 2021, 23(8), 944; https://doi.org/10.3390/e23080944 - 23 Jul 2021
Viewed by 251
Abstract
Text mining is applied to 510 articles on econophysics to reconstruct the lexical evolution of the discipline from 1999 to 2020. The analysis of the relative frequency of the words used in the articles and their “visualization” allow us to draw some conclusions [...] Read more.
Text mining is applied to 510 articles on econophysics to reconstruct the lexical evolution of the discipline from 1999 to 2020. The analysis of the relative frequency of the words used in the articles and their “visualization” allow us to draw some conclusions about the evolution of the discipline. The traditional areas of research, financial markets and distribution of wealth, remain central, but they are flanked by other strands of research—production, currencies, networks—which broaden the discipline by pushing towards a dialectical application of traditional concepts and tools drawn from statistical physics. Full article
(This article belongs to the Special Issue Three Risky Decades: A Time for Econophysics?)
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Article
The Stock Market Model with Delayed Information Impact from a Socioeconomic View
Entropy 2021, 23(7), 893; https://doi.org/10.3390/e23070893 - 14 Jul 2021
Viewed by 312
Abstract
Finding the critical factor and possible “Newton’s laws” in financial markets has been an important issue. However, with the development of information and communication technologies, financial models are becoming more realistic but complex, contradicting the objective law “Greatest truths are the simplest.” Therefore, [...] Read more.
Finding the critical factor and possible “Newton’s laws” in financial markets has been an important issue. However, with the development of information and communication technologies, financial models are becoming more realistic but complex, contradicting the objective law “Greatest truths are the simplest.” Therefore, this paper presents an evolutionary model independent of micro features and attempts to discover the most critical factor. In the model, information is the only critical factor, and stock price is the emergence of collective behavior. The statistical properties of the model are significantly similar to the real market. It also explains the correlations of stocks within an industry, which provides a new idea for studying critical factors and core structures in the financial markets. Full article
(This article belongs to the Special Issue Three Risky Decades: A Time for Econophysics?)
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Article
Financial Return Distributions: Past, Present, and COVID-19
Entropy 2021, 23(7), 884; https://doi.org/10.3390/e23070884 - 12 Jul 2021
Cited by 1 | Viewed by 368
Abstract
We analyze the price return distributions of currency exchange rates, cryptocurrencies, and contracts for differences (CFDs) representing stock indices, stock shares, and commodities. Based on recent data from the years 2017–2020, we model tails of the return distributions at different time scales by [...] Read more.
We analyze the price return distributions of currency exchange rates, cryptocurrencies, and contracts for differences (CFDs) representing stock indices, stock shares, and commodities. Based on recent data from the years 2017–2020, we model tails of the return distributions at different time scales by using power-law, stretched exponential, and q-Gaussian functions. We focus on the fitted function parameters and how they change over the years by comparing our results with those from earlier studies and find that, on the time horizons of up to a few minutes, the so-called “inverse-cubic power-law” still constitutes an appropriate global reference. However, we no longer observe the hypothesized universal constant acceleration of the market time flow that was manifested before in an ever faster convergence of empirical return distributions towards the normal distribution. Our results do not exclude such a scenario but, rather, suggest that some other short-term processes related to a current market situation alter market dynamics and may mask this scenario. Real market dynamics is associated with a continuous alternation of different regimes with different statistical properties. An example is the COVID-19 pandemic outburst, which had an enormous yet short-time impact on financial markets. We also point out that two factors—speed of the market time flow and the asset cross-correlation magnitude—while related (the larger the speed, the larger the cross-correlations on a given time scale), act in opposite directions with regard to the return distribution tails, which can affect the expected distribution convergence to the normal distribution. Full article
(This article belongs to the Special Issue Three Risky Decades: A Time for Econophysics?)
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Article
Aspects of a Phase Transition in High-Dimensional Random Geometry
Entropy 2021, 23(7), 805; https://doi.org/10.3390/e23070805 - 24 Jun 2021
Viewed by 382
Abstract
A phase transition in high-dimensional random geometry is analyzed as it arises in a variety of problems. A prominent example is the feasibility of a minimax problem that represents the extremal case of a class of financial risk measures, among them the current [...] Read more.
A phase transition in high-dimensional random geometry is analyzed as it arises in a variety of problems. A prominent example is the feasibility of a minimax problem that represents the extremal case of a class of financial risk measures, among them the current regulatory market risk measure Expected Shortfall. Others include portfolio optimization with a ban on short-selling, the storage capacity of the perceptron, the solvability of a set of linear equations with random coefficients, and competition for resources in an ecological system. These examples shed light on various aspects of the underlying geometric phase transition, create links between problems belonging to seemingly distant fields, and offer the possibility for further ramifications. Full article
(This article belongs to the Special Issue Three Risky Decades: A Time for Econophysics?)
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Article
Are Mobility and COVID-19 Related? A Dynamic Analysis for Portuguese Districts
Entropy 2021, 23(6), 786; https://doi.org/10.3390/e23060786 - 21 Jun 2021
Viewed by 487
Abstract
In this research work, we propose to assess the dynamic correlation between different mobility indices, measured on a daily basis, and the new cases of COVID-19 in the different Portuguese districts. The analysis is based on global correlation measures, which capture linear and [...] Read more.
In this research work, we propose to assess the dynamic correlation between different mobility indices, measured on a daily basis, and the new cases of COVID-19 in the different Portuguese districts. The analysis is based on global correlation measures, which capture linear and non-linear relationships in time series, in a robust and dynamic way, in a period without significant changes of non-pharmacological measures. The results show that mobility in retail and recreation, grocery and pharmacy, and public transport shows a higher correlation with new COVID-19 cases than mobility in parks, workplaces or residences. It should also be noted that this relationship is lower in districts with lower population density, which leads to the need for differentiated confinement policies in order to minimize the impacts of a terrible economic and social crisis. Full article
(This article belongs to the Special Issue Three Risky Decades: A Time for Econophysics?)
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Article
A Maximum Entropy Model of Bounded Rational Decision-Making with Prior Beliefs and Market Feedback
Entropy 2021, 23(6), 669; https://doi.org/10.3390/e23060669 - 26 May 2021
Cited by 1 | Viewed by 809
Abstract
Bounded rationality is an important consideration stemming from the fact that agents often have limits on their processing abilities, making the assumption of perfect rationality inapplicable to many real tasks. We propose an information-theoretic approach to the inference of agent decisions under Smithian [...] Read more.
Bounded rationality is an important consideration stemming from the fact that agents often have limits on their processing abilities, making the assumption of perfect rationality inapplicable to many real tasks. We propose an information-theoretic approach to the inference of agent decisions under Smithian competition. The model explicitly captures the boundedness of agents (limited in their information-processing capacity) as the cost of information acquisition for expanding their prior beliefs. The expansion is measured as the Kullblack–Leibler divergence between posterior decisions and prior beliefs. When information acquisition is free, the homo economicus agent is recovered, while in cases when information acquisition becomes costly, agents instead revert to their prior beliefs. The maximum entropy principle is used to infer least biased decisions based upon the notion of Smithian competition formalised within the Quantal Response Statistical Equilibrium framework. The incorporation of prior beliefs into such a framework allowed us to systematically explore the effects of prior beliefs on decision-making in the presence of market feedback, as well as importantly adding a temporal interpretation to the framework. We verified the proposed model using Australian housing market data, showing how the incorporation of prior knowledge alters the resulting agent decisions. Specifically, it allowed for the separation of past beliefs and utility maximisation behaviour of the agent as well as the analysis into the evolution of agent beliefs. Full article
(This article belongs to the Special Issue Three Risky Decades: A Time for Econophysics?)
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Article
Highway Freight Transportation Diversity of Cities Based on Radiation Models
Entropy 2021, 23(5), 637; https://doi.org/10.3390/e23050637 - 20 May 2021
Cited by 1 | Viewed by 504
Abstract
Using a unique data set containing about 15.06 million truck transportation records in five months, we investigate the highway freight transportation diversity of 338 Chinese cities based on the truck transportation probability pij from one city to another. The transportation probabilities are calculated from the radiation model based on the geographic distance and its cost-based version based on the driving distance as the proxy of cost. For each model, we consider both the population and the gross domestic product (GDP), and find quantitatively very similar results. We find that the transportation probabilities have nice power-law tails with the tail exponents close to 0.5 for all the models. The two transportation probabilities in each model fall around the diagonal pij=pji but are often not the same. In addition, the corresponding transportation probabilities calculated from the raw radiation model and the cost-based radiation model also fluctuate around the diagonal pijgeo=pijcost. We calculate four sets of highway truck transportation diversity according to the four sets of transportation probabilities that are found to be close to each other for each city pair. It is found that the population, the gross domestic product, the in-flux, and the out-flux scale as power laws with respect to the transportation diversity in the raw and cost-based radiation models. It implies that a more developed city usually has higher diversity in highway truck transportation, which reflects the fact that a more developed city usually has a more diverse economic structure. Full article
(This article belongs to the Special Issue Three Risky Decades: A Time for Econophysics?)
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Article
Optimizing Expected Shortfall under an 1 Constraint—An Analytic Approach
Entropy 2021, 23(5), 523; https://doi.org/10.3390/e23050523 - 24 Apr 2021
Viewed by 451
Abstract
Expected Shortfall (ES), the average loss above a high quantile, is the current financial regulatory market risk measure. Its estimation and optimization are highly unstable against sample fluctuations and become impossible above a critical ratio r=N/T, where N is the number of different assets in the portfolio, and T is the length of the available time series. The critical ratio depends on the confidence level α, which means we have a line of critical points on the αr plane. The large fluctuations in the estimation of ES can be attenuated by the application of regularizers. In this paper, we calculate ES analytically under an 1 regularizer by the method of replicas borrowed from the statistical physics of random systems. The ban on short selling, i.e., a constraint rendering all the portfolio weights non-negative, is a special case of an asymmetric 1 regularizer. Results are presented for the out-of-sample and the in-sample estimator of the regularized ES, the estimation error, the distribution of the optimal portfolio weights, and the density of the assets eliminated from the portfolio by the regularizer. It is shown that the no-short constraint acts as a high volatility cutoff, in the sense that it sets the weights of the high volatility elements to zero with higher probability than those of the low volatility items. This cutoff renormalizes the aspect ratio r=N/T, thereby extending the range of the feasibility of optimization. We find that there is a nontrivial mapping between the regularized and unregularized problems, corresponding to a renormalization of the order parameters. Full article
(This article belongs to the Special Issue Three Risky Decades: A Time for Econophysics?)
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Article
Network Analysis of Cross-Correlations on Forex Market during Crises. Globalisation on Forex Market
Entropy 2021, 23(3), 352; https://doi.org/10.3390/e23030352 - 15 Mar 2021
Cited by 2 | Viewed by 432
Abstract
Within the paper, the problem of globalisation during financial crises is analysed. The research is based on the Forex exchange rates. In the analysis, the power law classification scheme (PLCS) is used. The study shows that during crises cross-correlations increase resulting in significant [...] Read more.
Within the paper, the problem of globalisation during financial crises is analysed. The research is based on the Forex exchange rates. In the analysis, the power law classification scheme (PLCS) is used. The study shows that during crises cross-correlations increase resulting in significant growth of cliques, and also the ranks of nodes on the converging time series network are growing. This suggests that the crises expose the globalisation processes, which can be verified by the proposed analysis. Full article
(This article belongs to the Special Issue Three Risky Decades: A Time for Econophysics?)
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Article
Development of Econophysics: A Biased Account and Perspective from Kolkata
Entropy 2021, 23(2), 254; https://doi.org/10.3390/e23020254 - 23 Feb 2021
Cited by 1 | Viewed by 628
Abstract
We present here a somewhat personalized account of the emergence of econophysics as an attractive research topic in physical, as well as social, sciences. After a rather detailed storytelling about our endeavors from Kolkata, we give a brief description of the main research [...] Read more.
We present here a somewhat personalized account of the emergence of econophysics as an attractive research topic in physical, as well as social, sciences. After a rather detailed storytelling about our endeavors from Kolkata, we give a brief description of the main research achievements in a simple and non-technical language. We also briefly present, in technical language, a piece of our recent research result. We conclude our paper with a brief perspective. Full article
(This article belongs to the Special Issue Three Risky Decades: A Time for Econophysics?)
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Article
Neural Networks for Estimating Speculative Attacks Models
Entropy 2021, 23(1), 106; https://doi.org/10.3390/e23010106 - 13 Jan 2021
Cited by 1 | Viewed by 731
Abstract
Currency crises have been analyzed and modeled over the last few decades. These currency crises develop mainly due to a balance of payments crisis, and in many cases, these crises lead to speculative attacks against the price of the currency. Despite the popularity [...] Read more.
Currency crises have been analyzed and modeled over the last few decades. These currency crises develop mainly due to a balance of payments crisis, and in many cases, these crises lead to speculative attacks against the price of the currency. Despite the popularity of these models, they are currently shown as models with low estimation precision. In the present study, estimates are made with first- and second-generation speculative attack models using neural network methods. The results conclude that the Quantum-Inspired Neural Network and Deep Neural Decision Trees methodologies are shown to be the most accurate, with results around 90% accuracy. These results exceed the estimates made with Ordinary Least Squares, the usual estimation method for speculative attack models. In addition, the time required for the estimation is less for neural network methods than for Ordinary Least Squares. These results can be of great importance for public and financial institutions when anticipating speculative pressures on currencies that are in price crisis in the markets. Full article
(This article belongs to the Special Issue Three Risky Decades: A Time for Econophysics?)
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Review

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Review
Energy, Entropy, Constraints, and Creativity in Economic Growth and Crises
Entropy 2020, 22(10), 1156; https://doi.org/10.3390/e22101156 - 14 Oct 2020
Cited by 2 | Viewed by 780
Abstract
The neoclassical mainstream theory of economic growth does not care about the First and the Second Law of Thermodynamics. It usually considers only capital and labor as the factors that produce the wealth of modern industrial economies. If energy is taken into account [...] Read more.
The neoclassical mainstream theory of economic growth does not care about the First and the Second Law of Thermodynamics. It usually considers only capital and labor as the factors that produce the wealth of modern industrial economies. If energy is taken into account as a factor of production, its economic weight, that is its output elasticity, is assigned a meager magnitude of roughly 5 percent, according to the neoclassical cost-share theorem. Because of that, neoclassical economics has the problems of the “Solow Residual”, which is the big difference between observed and computed economic growth, and of the failure to explain the economic recessions since World War 2 by the variations of the production factors. Having recalled these problems, we point out that technological constraints on factor combinations have been overlooked in the derivation of the cost-share theorem. Biophysical analyses of economic growth that disregard this theorem and mend the neoclassical deficiencies are sketched. They show that energy’s output elasticity is much larger than its cost share and elucidate the existence of bidirectional causality between energy conversion and economic growth. This helps to understand how economic crises have been triggered and overcome by supply-side and demand-side actions. Human creativity changes the state of economic systems. We discuss the challenges to it by the risks from politics and markets in conjunction with energy sources and technologies, and by the constraints that the emissions of particles and heat from entropy production impose on industrial growth in the biosphere. Full article
(This article belongs to the Special Issue Three Risky Decades: A Time for Econophysics?)
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