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Register a new userSicily and the development of Econophysics: the pioneering work of Ettore Majorana and the Econophysics Workshop in Palermo
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Rosario N. Mantegna
Publication date
2014
fields
Physics
and research's language is
English
Authors
Rosario N. Mantegna
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Sicily has played an important role in the development of the new research area named Econophysics. In fact some key ideas supporting this new hybrid discipline were originally formulated in a pioneering work of the Sicilian born physicist Ettore Majorana. The article he wrote was entitled The value of statistical laws in physics and social sciences. I will discuss its origin and history that has been recently discovered in the study of Stefano Roncoroni. This recent study documents the true reasons and motivations that triggered the pioneering work of Majorana. It also shows that the description of this work provided by Edoardo Amaldi was shallow and misleading. In the second part of the talk I will recollect the first years of development of econophysics and in particular the role of the International Workshop on Econophysics and Statistical Finance held in Palermo on 28-30 September 1998 and the setting in 1999 of the Observatory of Complex Systems the research group on Econophysics of Palermo University and Istituto Nazionale di Fisica della Materia.
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Research activities of Kyoto Econophysics Group is reviewed. Strong emphasis has been placed on real economy. While the initial stage of research was a first high-definition data analysis on personal income, it soon progressed to firm dynamics, growth rate distribution and establishment of Paretos law and Gibrats law. It then led to analysis and simulation of firm dynamics on economic network. Currently it covers a wide rage of dynamics of firms and financial institutions on complex network, using Japanese large-scale network data, some of which are not available in other countries. Activities of this group for publicising and promoting understanding of econophysics is also reviewed.
Socio-economic inequality is measured using various indices. The Gini ($g$) index, giving the overall inequality is the most commonly used, while the recently introduced Kolkata ($k$) index gives a measure of $1-k$ fraction of population who possess top $k$ fraction of wealth in the society. This article reviews the character of such inequalities, as seen from a variety of data sources, the apparent relationship between the two indices, and what toy models tell us. These socio-economic inequalities are also investigated in the context of man-made social conflicts or wars, as well as in natural disasters. Finally, we forward a proposal for an international institution with sufficient fund for visitors, where natural and social scientists from various institutions of the world can come to discuss, debate and formulate further developments.
The importance of the power law has been well realized in econophysics over the last decade. For instance, the distribution of the rate of stock price variation and of personal assets show the power law. While these results reveal the striking scale invariance of financial markets, the behaviour of price in real economy is less known in spite of its extreme importance. As an example of markets in real economy, here we take up the price of precious stones which increases with size while the amount of their production rapidly decreases with size. We show for the first time that the price of natural precious stones (quartz crystal ball, gemstones such as diamond, emerald, and sapphire) as a function of weight obeys the power law. This indicates that the price is determined by the same evaluation measure for different sizes. Our results demonstrate that not only the distribution of an economical observable but also the price itself obeys the power law. We anticipate our findings to be a starting point for the quantitative study of scale invariance in real economy. While the Black--Sholes model provided the framework for optimal pricing in financial markets, our method of analysis prvides a new framework that characterizes the market in real economy.
We introduce here very briefly, through some selective choices of problems and through the sample computer simulation programs (following the request of the editor for this invited review in the Journal of Physics Through Computation), the newly developed field of econophysics. Though related attempts could be traced much earlier (see the Appendix), the formal researches in econophysics started in 1995. We hope, the readers (students & researchers) can start themselves to enjoy the excitement, through the sample computer programs given, and eventually can undertake researches in the frontier problems, through the indicated survey literature provided.
This article aims at reviewing recent empirical and theoretical developments usually grouped under the term Econophysics. Since its name was coined in 1995 by merging the words Economics and Physics, this new interdisciplinary field has grown in various directions: theoretical macroeconomics (wealth distributions), microstructure of financial markets (order book modelling), econometrics of financial bubbles and crashes, etc. In the first part of the review, we discuss on the emergence of Econophysics. Then we present empirical studies revealing statistical properties of financial time series. We begin the presentation with the widely acknowledged stylized facts which describe the returns of financial assets- fat tails, volatility clustering, autocorrelation, etc.- and recall that some of these properties are directly linked to the way time is taken into account. We continue with the statistical properties observed on order books in financial markets. For the sake of illustrating this review, (nearly) all the stated facts are reproduced using our own high-frequency financial database. Finally, contributions to the study of correlations of assets such as random matrix theory and graph theory are presented. In the second part of the review, we deal with models in Econophysics through the point of view of agent-based modelling. Amongst a large number of multi-agent-based models, we have identified three representative areas. First, using previous work originally presented in the fields of behavioural finance and market microstructure theory, econophysicists have developed agent-based models of order-driven markets that are extensively presented here. Second, kinetic theory models designed to explain some empirical facts on wealth distribution are reviewed. Third, we briefly summarize game theory models by reviewing the now classic minority game and related problems.
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