Information content of financial markets: a practical approach based on Bohmian quantum mechanics

TL;DR

This paper applies Bohmian quantum mechanics to analyze financial markets, revealing potential limits and scaling behaviors in return series that differ across market types, offering insights for investment strategies.

Contribution

It introduces a novel quantum potential framework to understand market dynamics and distinguishes patterns across mature, emerging, and commodity markets.

Findings

Quantum potentials exhibit scaling behavior across time scales.

Market types show distinct scaling slopes, with emerging markets > 0.5.

Commodity markets display a cutoff indicating efficiency thresholds.

Abstract

The Bohmian quantum approach is implemented to analyze the financial markets. In this approach, there is a wave function that leads to a quantum potential. This potential can explain the relevance and entanglements of the agent's behaviors with the past. The light is shed by considering the relevance of the market conditions with the previous market conditions enabling the conversion of the local concepts to the global ones. We have shown that there are two potential limits for each market. In essence, these potential limits act as a boundary which limits the return values inside it. By estimating the difference between these two limits in each market, it is found that the quantum potentials of the return time series in different time scales, possess a scaling behavior. The slopes of the scaling behaviors in mature, emerging and commodity markets show different patterns. The emerge market having a slope greater than 0.5, has a higher value compared to the corresponding values for the mature and commodity markets which is less than 0.5. The cut-off observed in the curve of the commodity market indicates the threshold for the efficiency of the global effects. While before the cut-off, local effects in the market are dominant, as in the case of the mature markets. The findings could prove adequate for investors in different markets to invest in different time horizons.