Book: Dynamics of Markets by J.L.McCauley.

Dynamics of Markets. Econophysics and Finance. J.L.McCauley

Econophysics is, very roughly speaking, economics or econometrics done by physicists or done the way physicists — or natural scientists for that matter — would do it. In particular, the emphasis is on quantitative real-life evidence and natural-science-style methods of inference.

On the particular subject of correlations (the little specialty of this site), the author states (Section 3.7) that “liquid markets (stock, bond, foreign exchange) are very hard to beat, meaning that to a good zeroth approximation there are no long-time correlations that can be exploited for profit”. More specifically: “Financial data indicate that strong initial pair correlations die out relatively quickly on a time scale of 10min of trading”.

In our Currency Alpha section we compare this with our own observations.