Step 12 of 13 | Menu

Plants and animals under stress may provide the key to better stock market predications


Stock markets react to crisis in a similar way to plants and the human body, according to a major new study that may help to predict future financial down-turns. An extensive analysis of biological and financial data suggests that systems under stress exhibit similar symptoms, whether they be polluted forests, cancer patients or the FTSE 100. ""By studying the dynamics of correlation and variance in many systems facing external, or environmental, factors, we can typically, even before obvious symptoms of crisis appear, predict when one might occur, as correlation between individuals increases, and, at the same time, variance (and volatility) goes up." This was demonstrated, for example, by an analysis of the impact of emissions from a heat power station on Scots pine. For diagnostic purposes some metabolites in needles are measured. The test group of pines grow in the emission tongue of the power station. The control group was from a stand of the same age and forest type, growing outside the industrial emission area. No reliable difference was found in the test group and control group average compositions. Nevertheless, the sample variance in the test group was 2.56 times higher, and the difference in the correlations was huge: in the test group the correlations were almost five times higher. Many examples from human physiology support this observation: from the adaptation of healthy people to a change in climate conditions to the analysis of fatal outcomes in oncological and cardiological clinics. The same effect is found in the stock market. For example, in the dynamics of the 30 largest companies traded on the London Stock Exchanges, from 14/08/2008 to 14/10/2008 the correlations increased five times and the variance increased seven times."

Visit Sciencedaily


Log in or Sign up to comment