Breaking down the Barriers between Econophysics and Financial Economics
25 Pages Posted: 19 Dec 2018
Date Written: December 2, 2018
This article highlights the current misunderstanding between economists and econophysicists by adopting the financial economists’ viewpoint in order to explain why the works developed by econophysicists are not recognized in finance. Because both communities do not share the same scientific culture, and for the other reasons developed in the article, economists often consider econophysics as a strictly empirical field without theoretical justification. This paper shows the opposite; it also tries to facilitate the dialogue between econophysicists who often do not explain in details their theoretical roots and financial economists who are not familiar with statistical physics.
Beyond this clarification, this paper also allows to identify what remains to be done for econophysicists to contribute significantly to financial economics:
1) development of a common framework\vocabulary in order to better compare and integrate the two approaches;
2) development of generative models explaining the emergence of power laws; and
3) development of statistical tests for the identification of such statistical regularities.
Keywords: Statistical Physics Applied to Finance; Power Laws; Interdisciplinarity; Econophysics; Financial Economics and Econophysics
JEL Classification: G1, N2, B4, B5, B26
Suggested Citation: Suggested Citation