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© 2008 Faculty of Science
University of Ruhuna

RUHUNA JOURNAL OF SCIENCE
Vol. 2, September 2008, pp. 8-17
http://www.ruh.ac.lk/rjs/rjs.html
ISSN 1800-279X

Abstract. A  semi-empirical  statistical  physics  model  for  the  dynamical  behavior  of  stock  prices  in   Sri 
Lankan financial market was analyzed. In this model, the time evolution of a collective set of stock prices was  
analyzed using the Hamiltonian of a nearest neighbor Ising model.  Monte Carlo simulations were performed  
and resultant stylized features of the corresponding system were discussed.   

Keywords: Spin model, Time series, Stock market, Stylized features.

1. INTRODUCTION

There has been much recent work applying physics concepts and methods to the study of financial 

time  series(  Mantegna  and  Stanley  2000,  Fischer  1991,  Mandelbolt  1982).  In  particular,  several 

empirical studies have determined the scale-invariant behavior of  the distribution of price changes, 

the long-range correlation in the absolute value of returns, stock market crashes( Mantegna 2000, 

Gopakrishnan,  Meyer  1999,  Wedagedara  2006).  In  this  paper  we  mainly  focus  on  the  time 

evolution of a collective set of stock prices(Maskawa 2000)  in Sri Lankan stock market as a case 

study.

We consider the statistics of the sign of price changes. The time series of price changes are coded 

into a sequence of up and down Ising spins. Table 1 shows a sample of the coding procedure for 

virtual  data  of  All  Share  Price  Index  and  of  Milanka  Price  Index  in  Colombo  Stock  Market 

respectively. 

Let iy  be the price of the i
th sample.  The i th price change is defined as 1−

−=
i

y
i

y
i

Z  and  i th 

code is

8

A spin model for the dynamical behavior of the 
financial market

Ranasinghe P. K. C. Malmini
Department of Mathematics, University of Sri Jayewardenepura, Nugegoda,

 Sri Lanka
Correspondence: malmini@sjp.ac.lk

http://www.ruh.ac.lk/rjs/rjs.html

	1. Introduction