Featured Research

from universities, journals, and other organizations

Exchange rate behaves like particles in a molecular fluid

Date:
March 13, 2014
Source:
ETH Zurich
Summary:
The swings in market prices and exchange rates have the same foundations as molecule movements in physics. This has been demonstrated by a team of scientists from Switzerland and Japan.

When scientists observe minute particles like nanoparticles or bacteria in fluid under a microscope, they don't see a motionless image. What they do see are particles making the tiniest irregular twitches not unlike the nervous ups-and-downs of market prices and exchange rates. These two forms of random twitching -- microparticles in fluid and price developments on the financial market -- are not just similar at first sight as a Japanese-Swiss team has now demonstrated. The underlying mechanism is the same too.

Brownian motion, the name given by scientists to the microtwitching of particles in fluid, results from the impact of the universal thermal agitation of the individual molecules in the fluid. The renowned French mathematician Louis Bachelier observed back at the beginning of the 20th century that there were parallels between this random walk behavior and exchange rates. However, it is only now that Didier Sornette, Professor of Entrepreneurial Risks at ETH Zurich together with colleagues from Japan, has been able to demonstrate exact correlations between the two. The scientists have published their work in the journal Physical Review Letters.

Stock exchange meets Einstein's theorem

"Microparticles are surrounded and moved around by the molecules in the fluid. Similarly, the price at which securities or currencies are traded on a financial market should not be examined in isolation either," explains Sornette. It is far more the case that this price is embedded at all times in a larger whole, in the total sum of buying and selling orders of stockbroker's clients. When the number of these orders is far higher than that of the actual transactions, many bids won't lead to any transactions. This is the case, for instance, when an interested party is only willing to pay a relatively low price for a security but no holder is willing to sell for such a low price. Or when someone wants to sell a security for a relatively high price but can't find a buyer.

Exchange rates and bids influence each other -- spurred on by the ongoing efforts of all market players to make a profit by exploiting the differences in the prices. This means that the order book of stockbrokers is in constant motion. "This -- dynamic -- behaviour of all orders is comparable to the physical behaviour and influence of fluids on a Brownian particle, in the sense that the dynamics of the order book influences the observed transaction price in a precise way ," says Sornette.

The scientists checked their theory against available market data. To this end, they used the data of a global brokering company on the dollar-yen exchange rate. They were, for instance, able to demonstrate that the totality of orders for the buying and selling of the two currencies even met one of the most important theorems of statistical physics, the fluctuation-dissipation theorem that was developed by Albert Einstein in 1905, and still is a very active domain of research for its many applications.


Story Source:

The above story is based on materials provided by ETH Zurich. Note: Materials may be edited for content and length.


Journal Reference:

  1. Yoshihiro Yura, Hideki Takayasu, Didier Sornette, Misako Takayasu. Financial Brownian Particle in the Layered Order-Book Fluid and Fluctuation-Dissipation Relations. Physical Review Letters, 2014; 112 (9) DOI: 10.1103/PhysRevLett.112.098703

Cite This Page:

ETH Zurich. "Exchange rate behaves like particles in a molecular fluid." ScienceDaily. ScienceDaily, 13 March 2014. <www.sciencedaily.com/releases/2014/03/140313092706.htm>.
ETH Zurich. (2014, March 13). Exchange rate behaves like particles in a molecular fluid. ScienceDaily. Retrieved September 30, 2014 from www.sciencedaily.com/releases/2014/03/140313092706.htm
ETH Zurich. "Exchange rate behaves like particles in a molecular fluid." ScienceDaily. www.sciencedaily.com/releases/2014/03/140313092706.htm (accessed September 30, 2014).

Share This



More Matter & Energy News

Tuesday, September 30, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

Argentina's Tax Evaders Detected, Hunted Down by Drones

Argentina's Tax Evaders Detected, Hunted Down by Drones

AFP (Sep. 30, 2014) Argentina doesn't only have Lionel Messi the footballer, it has now also acquired "Mesi" the drone system which monitors undeclared mansions, swimming pools and soy fields to curb tax evasion in the country. Duration: 01:18 Video provided by AFP
Powered by NewsLook.com
Do Video Games Trump Brain Training For Cognitive Boosts?

Do Video Games Trump Brain Training For Cognitive Boosts?

Newsy (Sep. 29, 2014) More and more studies are showing positive benefits to playing video games, but the jury is still out on brain training programs. Video provided by Newsy
Powered by NewsLook.com
CERN Celebrates 60 Years of Science

CERN Celebrates 60 Years of Science

Reuters - Business Video Online (Sep. 29, 2014) CERN, the European Organisation for Nuclear Research, celebrates 60 years of bringing nations together through science. As Joanna Partridge reports from inside the famous science centre it's also planning to turn the Large Hadron Collider particle accelerator back on after an upgrade. Video provided by Reuters
Powered by NewsLook.com
This 'Invisibility Cloak' Is Simpler Than Most

This 'Invisibility Cloak' Is Simpler Than Most

Newsy (Sep. 28, 2014) Researchers from the University of Rochester have created a type of invisibility cloak with simple focal lenses. Video provided by Newsy
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:

Breaking News:

Strange & Offbeat Stories


Space & Time

Matter & Energy

Computers & Math

In Other News

... from NewsDaily.com

Science News

Health News

Environment News

Technology News



Save/Print:
Share:

Free Subscriptions


Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

Get Social & Mobile


Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

Have Feedback?


Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
Mobile: iPhone Android Web
Follow: Facebook Twitter Google+
Subscribe: RSS Feeds Email Newsletters
Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins