Stylized Facts and Their Microscopic Origins: Clustering, Persistence, and Stability in a 2D Ising Framework

TL;DR

This paper uses a 2D Ising model to explore how microscopic agent interactions lead to market phenomena like volatility clustering and heavy-tailed return distributions, linking physical models to financial stylized facts.

Contribution

It introduces a microscopic Ising framework to explain the origin of stylized facts in financial markets, connecting cluster morphology and persistence to market dynamics.

Findings

Cluster morphology and persistence explain stylized facts

Absolute overlap quantifies system state correlation

Reorganization of clusters causes intermittency and volatility

Abstract

The analysis of financial markets using models inspired by statistical physics offers a fruitful approach to understand collective and extreme phenomena [3, 14, 15] In this paper, we present a study based on a 2D Ising network model where each spin represents an agent that interacts only with its immediate neighbors plus a term reated to the mean field [1, 2]. From this simple formulation, we analyze the formation of spin clusters, their temporal persistence, and the morphological evolution of the system as a function of temperature [5, 19]. Furthermore, we introduce the study of the quantity $1/2P\sum_{i}|S_{i}(t)+S_{i}(t+\Delta t)|$, which measures the absolute overlap between consecutive configurations and quantifies the degree of instantaneous correlation between system states. The results show that both the morphology and persistence of the clusters and the dynamics of the absolute sum can explain universal statistical properties observed in financial markets, known as stylized facts [2, 12, 18]: sharp peaks in returns, distributions with heavy tails, and zero autocorrelation. The critical structure of clusters and their reorganization over time thus provide a microscopic mechanism that gives rise to the intermittency and clustered volatility observed in prices [2, 15].