Boltzmann Distribution and Temperature of Stock Markets

preprint2007arXivOpen access

Abstract

The minute fluctuations of of S&P 500 and NASDAQ 100 indices display Boltzmann statistics over a wide range of positive as well as negative returns, thus allowing us to define a {\em market temperature} for either sign. With increasing time the sharp Boltzmann peak broadens into a Gaussian whose volatility σ σ measured in 1/min1/ \sqrt{\rm min} is related to the temperature TT by T=σ/2T= σ/ \sqrt{2}. Plots over the years 1990--2006 show that the arrival of the 2000 crash was preceded by an increase in market temperature, suggesting that this increase can be used as a warning signal for crashes. A plot of the Dow Jones temperature over 78 years reveals a remarkable stability through many historical turmoils, interrupted only by short heat bursts near the crashes.

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