Financial Market Dynamics: A Synergetic Perspective

Abstract

Glossary Econophysics An interdisciplinary research field where theories and methods originally developed by physicists are used to model financial markets and economic systems. Stock returns The relative change in value of the price of a stock over a particular time horizon (for example one day, or one year). Volatility The risk or uncertainty of the magnitude of a stock's returns. Realized volatility can be calculated from the historical time-series of stock returns over some past window, most commonly as the standard deviation of returns but other proxies can be used such as the mean absolute value of returns. Market Volatility Market volatility is the uncertainty of price moves of a given market (rather than a single stock) , such as the US stock market , which is well-represented by the S&P 500 Index. The VIX Index Also known as the "fear" index, this represents a forward view of volatility or uncertainty in the market. It is computed from stock index option prices. Stylized Facts Statistical characteristics of financial time-series that appear to be somewhat universal across asset classes and geographies. These include volatility clustering, long-range memory in absolute price returns, the fat-tailed distribution of price returns that persist over horizons ranging from intraday to weeks. Market Panic A state in which correlations among stock returns are very high together with highly elevated levels of the VIX index.