Insights into the Macroscopic Behavior of Equity Markets: Theory and Application

Forthcoming in Physica A: Statistical Mechanics and its Applications

Posted: 8 Aug 2017 Last revised: 6 May 2018

See all articles by Abdullah AlShelahi

Abdullah AlShelahi

University of Michigan at Ann Arbor, College of Engineering, Department of Industrial and Operations Engineering

Romesh Saigal

University of Michigan at Ann Arbor - Department of Industrial and Operations Engineering

Date Written: August 7, 2017

Abstract

In this research, we propose a macroscopic model of the equity market based on the physics of fluid dynamics. We develop sensors triggered by certain properties of the macroscopic variables, density and velocity, that can alert regulators to abnormal activity. Fluid flow in physics will be used to measure the irregularities found in the behavior of financial markets. Testing the proposed sensors on the day of a flash crash suggests further investigation in this area.

Keywords: Financial Markets, Macroscopic Model, Stochastic Partial Differential Equations, Flash Crash

Suggested Citation

AlShelahi, Abdullah and Saigal, Romesh, Insights into the Macroscopic Behavior of Equity Markets: Theory and Application (August 7, 2017). Forthcoming in Physica A: Statistical Mechanics and its Applications, Available at SSRN: https://ssrn.com/abstract=3015004 or http://dx.doi.org/10.2139/ssrn.3015004

Abdullah AlShelahi (Contact Author)

University of Michigan at Ann Arbor, College of Engineering, Department of Industrial and Operations Engineering ( email )

1205 Beal Avenue
Ann Arbor, MI 48109
United States

Romesh Saigal

University of Michigan at Ann Arbor - Department of Industrial and Operations Engineering ( email )

1205 Beal Avenue
Ann Arbor, MI 48109
United States

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