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Common scaling behavior in finance and macroeconomics

Podobnik, Boris and Horvatic, Davor and Petersen, Alexander M. and Njavro, M. and Stanley, H. Eugene Common scaling behavior in finance and macroeconomics. The European Physical Journal B, 76 (4). pp. 487-490. ISSN 1434-6028 (2010)

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In order to test whether scaling exists in finance at the world level, we test whether the average growth rates and volatility of market capitalization (MC) depend on the level of MC. We analyze the MC for 54 worldwide stock indices and 48 worldwide bond indices. We find that (i) the average growth rate r of the MC and (ii) the standard deviation (r) of growth rates r decrease both with MC as power laws, with exponents w = 0.28 ± 0.09 and w = 0.12 ± 0.04. We define a stochastic process in order to model the scaling results we find for worldwide stock and bond indices. We establish a power-law relationship between the MC of a country’s financial market and the gross domestic product (GDP) of the same country.

Item Type: Article
Identification Number: 10.1140/epjb/e2009-00380-3
Additional Information: PACS 89.65.Gh Economics; econophysics, financial markets, business and management - 89.65.-s Social and economic systems - 89.75.Da Systems obeying scaling laws - 02.50.Ey Stochastic processes
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Q Science > QC Physics
Research Area: Economics and Institutional Change
Depositing User: Alexander Petersen
Date Deposited: 04 Jul 2011 09:21
Last Modified: 06 Apr 2016 08:01
URI: http://eprints.imtlucca.it/id/eprint/264

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