Phase Transition in the S&P Stock Market

TL;DR

This paper investigates a phase transition in the S&P stock market from 1987 to 2012 by analyzing the covariance matrix of firm returns, revealing a shift from an ordered to a disordered market state around 2005.

Contribution

It identifies a long-term phase transition in market behavior using eigenvector analysis and interprets it through an agent-based model.

Findings

Market was ordered from 1995 to 2005

Market transitioned to a disordered state after 2005

Eigenvector analysis reveals a phase transition in market dynamics

Abstract

We analyze the stock prices of the S&P market from 1987 until 2012 with the covariance matrix of the firm returns determined in time windows of several years. The eigenvector belonging to the leading eigenvalue (market) exhibits in its long term time dependence a phase transition with an order parameter which can be interpreted within an agent-based model. From 1995 to 2005 the market is in an ordered state and after 2005 in a disordered state.