Using Empirical Data to Estimate Potential Functions in Commodity Markets: Some Initial Results

C Shen,E Haven

doi:10.1007/s10773-017-3446-z

Abstract

This paper focuses on estimating real and quantum potentials from financial commodities. The log returns of six common commodities are considered. We find that some phenomena, such as the vertical potential walls and the time scale issue of the variation on returns, also exists in commodity markets. By comparing the quantum and classical potentials, we attempt to demonstrate that the information within these two types of potentials is different. We believe this empirical result is consistent with the theoretical assumption that quantum potentials (when embedded into social science contexts) may contain some social cognitive or market psychological information, while classical potentials mainly reflect ‘hard’ market conditions. We also compare the two potential forces and explore their relationship by simply estimating the Pearson correlation between them. The Medium or weak interaction effect may indicate that the cognitive system among traders may be affected by those ‘hard’ market conditions.

Highlights

The area of academic finance is not foreign to using concepts from other disciplines to explain financial phenomena
Kernel density estimation was introduced by Rosenblatt [23] and it is a non-parametric way to estimate the density of a random variable
The quantum potentials of return time series of gold in daily, monthly and yearly scales are illustrated in respectively Figs. 2, 3 and 4 with h and m being equal to 1

Summary

Introduction

The area of academic finance is not foreign to using concepts from other disciplines to explain financial phenomena. In their book, Mantegna and Stanley [1] conclude that by utilizing statistical and probabilistic approaches (taken from statistical physics) in financial time series, they get new ideas about the behaviour of financial markets. Another example is chaos theory where physics methods turn out to be very useful in the analysis of complex economic systems (Chakraborti [2]). Our paper uses pilot wave theory to model quantum potentials from financial commodities. Recent work using empirical evidence in the application of some elements of the pilot wave formalism to finance is by Tahmasebi et al [14].

The Mathematical Formalism of the Quantum Potential

The Mathematical Formalism of the Classical Quantum Potential

The Kernel Density Estimation Method

The Empirical Results

Conclusion