On the "usual" misunderstandings between econophysics and finance: some clarifications on modelling approaches and efficient market hypothesis

TL;DR

This paper clarifies common misunderstandings between econophysics and financial economics, arguing that their modeling approaches are more similar than often perceived, especially regarding the Efficient Market Hypothesis.

Contribution

It challenges the prevalent dualist view by showing that econophysics and financial economics share similar approaches, reducing perceived differences at the modeling level.

Findings

Econophysics and financial economics both employ similar modeling approaches.

The distinction between the fields is often overstated and can be clarified.

Misunderstandings hinder collaboration and integration of methods.

Abstract

In line with the recent research and debates about econophysics and financial economics, this article discusses on usual misunderstandings between the two disciplines in terms of modelling and basic hypotheses. In the literature devoted to econophysics, the methodology used by financial economists is frequently considered as a top-down approach (starting from a priori "first principles") while econophysicists rather present themselves as scholars working with a (empirical data prone) bottom-up approach. Although this dualist perspective is very common in the econophysics literature, this paper claims that the distinction is very confusing and does not permit to reveal the essence of the differences between finance and econophysics. The distinction between these two fields is mainly investigated here through the lens of the Efficient Market Hypothesis in order to show that, in substance, econophysics and financial economics tend to have a similar approach implying that the misunderstanding between these two fields at the modelling level can therefore be overstepped.