The Action Principle in Market Mechanics

20 Pages Posted: 30 Jan 2017 Last revised: 19 Aug 2017

Jack Manhire

Texas A&M University School of Law

Date Written: June 13, 2017


This paper explores the possibility that asset prices, especially those traded in large volume on public exchanges, might comply with specific physical laws of motion and probability. The paper first examines the basic dynamics of asset price displacement and finds one can model this dynamic as a harmonic oscillator at local “slices” of elapsed time. Based on this finding, the paper theorizes that price displacements are constrained, meaning they have extreme values beyond which they cannot go when measured over a large number of sequential periods. By assuming price displacements are also subject to the principle of stationary action, the paper explores a method for measuring specific probabilities of future price displacements based on prior historical data. Testing this theory with two prevalent stock indices suggests it can make accurate forecasts as to constraints on extreme price movements during market “crashes” and probabilities of specific price displacements at other times.

Keywords: econophysics; asset prices; market model; probability; principle of least action; stock market; statistical finance; predictability

JEL Classification: C02; C63; C65; C1; C55; D4; G1; G12; L1; C25

Suggested Citation

Manhire, Jack, The Action Principle in Market Mechanics (June 13, 2017). Texas A&M University School of Law Legal Studies Research Paper No. 17-13. Available at SSRN: or

Jack Manhire (Contact Author)

Texas A&M University School of Law ( email )

1515 Commerce St.
Fort Worth, TX 76102
United States


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