Abstract

This chapter discusses how econophysics, influenced by statistical physics, has shaped its research focus in finance by identifying empirical stylized facts in financial markets and using them to guide model development. I comment on the efficient market hypothesis, noting that it generally holds for short-term return dynamics in mature, liquid markets and that econophysicists view it as an idealized model. By recognizing market heterogeneity and the deviations that can be empirically observed, I suggest that the adaptive market hypothesis offers a more flexible framework that considers the diverse strategies and behaviors of different investors, who adapt to changing market conditions and contribute to price discovery. Econophysics has also promoted granular analysis of individual trading behavior. Such an analysis offers insights into the metaphor of a market ecology. Finland, with its unique daily tracking of financial asset ownership, serves as a valuable “laboratory” for studying investor behavior. Similar granular research helps develop heuristics for price-discovery mechanisms and the ecological characterization of market participants to be used in agent-based models of financial markets.

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