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Journal Article

Phase transition in the S&P stock market

Authors

  • Raddant
  • M.
  • Wagner
  • F.

Publication Date

JEL Classification

G11 G12

Key Words

CAPM

S&P 500

stock price correlations

Related Topics

Financial Markets

USA

We analyze the returns of stocks contained in the Standard & Poor’s 500 index from 1987 until 2011. We use covariance matrices of the firms’ returns determined in a time windows of several years. We find that the eigenvector belonging to the leading eigenvalue (the market) exhibits a phase transition. The market is in an ordered state from 1995 to 2005 and in a disordered state after 2005. We can relate this Transition to an order parameter derived from the stocks’ beta and the trading volume. This order parameter can also be interpreted within an agent-based model.

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