Coherence resonance-like and efficiency of financial market

• Published in: Physica A Vol. 534; p. 122327
• Main Authors: Zhong, Guang-Yan, He, Feng, Li, Jiang-Cheng, Mei, Dong-Cheng, Tang, Nian-Sheng
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 15.11.2019
• Subjects: Bayesian estimation; Characteristic correlation time; Coherence resonance; Econophysics; Stochastic simulation; Econophysics; Characteristic correlation time; Stochastic simulation; Bayesian estimation; Coherence resonance
• ISSN: 0378-4371; 1873-2119
• DOI: 10.1016/j.physa.2019.122327

We study the coherent resonance phenomenon of stock market returns and volatility and discuss the effectiveness of financial market based on the coherent resonance theory of statistical physics. In this paper, we use the Heston model to give the series describing the return and volatility. Considering the limited data of CSI 300 index, the Bayesian estimation parameters of the proposed model are given by combining Bayesian parameter estimation and realized volatility. The characteristic correlation time (CCT) and normalized fluctuations of pulse durations Rp are employed to further explore the coherent resonance behavior of stock market price returns and volatility. Based on the stochastic simulation of the estimated parameters, we can observe the phenomena of coherent resonance-like and anti-coherent resonance in CCT and Rp as a function of long-run variance and amplitude of volatility. We can also observe the critical phenomenon, there is a critical mean reversion of volatility. On both sides of the critical value, the opposite characteristics of coherent and anti-coherent resonance can be observed. The enhanced long-run variance of volatility and weakened amplitude of volatility both cause coherent-like resonance in CCT and Rp vs. the mean reversion of volatility. In addition, it can be seen that the market efficiency is lower when coherent resonance occurs, and higher when anti-coherence resonance occurs. •We study the coherent resonance and the effectiveness of financial market by econophysics.•Bayesian estimation of the proposed model are given with realized volatility and real data.•The characteristic correlation time and normalized fluctuations of pulse durations are employed to explore the coherent resonance.•The coherent and inverse coherent resonance are observed.•The market efficiency is lower for coherent resonance and higher for coherent resonance.