Algorithmic Complexity in Real Financial Markets

Details Algorithmic Complexity in Real Financial Markets Algorithmic Complexity in Real Financial Markets

2001-04-24

arxiv.org/abs/cond-mat/0104472v1

Physics

Condensed Matter

Statistical Mechanics

19 pages, 5 figures, submitted to Physica A

Scientific paper

A new approach to the understanding of complex behavior of financial markets index using tools from thermodynamics and statistical physics is developed. Physical complexity, a magnitude rooted in Kolmogorov-Chaitin theory is applied to binary sequences built up from real time series of financial markets indexes. The study is based on NASDAQ and Mexican IPC data. Different behaviors of this magnitude are shown when applied to the intervals of series placed before crashes and to intervals when no financial turbulence is observed. The connection between our results and The Efficient Market Hypothesis is discussed.

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