New study examines application of science to study of financial markets

A new study that brings together the disparate fields of physics and finance to provide unique insights into financial markets has been co-authored by a University of Leicester researcher.

Dr Christophe Schinckus, from the University of Leicester School of Business, has collaborated on a new publication that steps beyond disciplinary frontiers to explore the intersection between physics and financial economics.

Working with Franck Jovanovic, a Professor in Economics and Finance at the University of Quebec – and formerly of the University of Leicester – they have published a new book by Oxford University Press available from December 2016: Econophysics and Financial Economics, An Emerging Dialogue.

Dr Schinckus, who is currently completing his second PhD, said: "The major issues between econophysics and economics concern the current lack of dialogue between the two fields. They both deal with the same economic/financial reality by using the same data. However, these two fields have different conceptual backgrounds implying that scientists involved in these two communities are doing science in a different way. The book deals with and discusses the potential development of a common conceptual framework that would make sense for scientists involved in both communities.

"Unlike other publications dedicated to econophysics, this book is written by two financial economists and it situates econophysics in the evolution of financial economics. The major issues that concern the collaboration between the two fields are deeply analysed. More specifically, this book explains the theoretical and methodological foundations of these two fields in an intelligible and common vocabulary providing the first extensive analytic comparison between models/results from both fields.

"The book also identifies the major conceptual gate-keepers that complicate all dialogue between the two communities while it provides elements to overcome these."

Dr Schinckus said that by mixing conceptual, historical, theoretical and formal arguments, the publication covers the current deaf dialogue between financial economists and econophysicists and offers new profitable perspectives in finance.

"This book details the recent results in econophysics that bring it closer to financial economics. So doing, it identifies what remains to be done for econophysicists to contribute significantly to financial economics.

"Beyond the clarification of the current situation, this book also proposes a generic model compatible with the two fields, defining the minimal conditions for common models. Finally, this publication provides a research agenda for a future fruitful collaboration between econophysicists and financial economists, creating new research opportunities. In this perspective, it lays the first foundations for common theoretical framework and models."

Dr Schinckus added that the study provided the possibility to develop a common framework between econophysicists and financial economists that could lead to a better understanding/description of financial reality.

"By proposing an interdisciplinary way of analysing extreme values on financial market scientists could have a better comprehension of the evolution of financial markets and therefore better study and prevent the financial crises," he said.

Provided by University of Leicester