Econophysics is a developing field in recent years. It’s a subject applying and proposing idea, method and models in Statistical Physics and Complexity into analyzing data coming from economical phenomena. Economics is a subject about human behavior related with the management of the resources, finances, income, the production and consumption of goods and services. So Economics is usually regraded as a social science. But in some ways, the laws in Economics are similar with natural science. Although it has to deal with incentive and human decision, but sometimes the collective behavior can be described by determinant process, at least in a statistical way. So the aim of Econophysics is to apply the idea of natural science as far as well into economics. Maybe this will disentangle natural laws and human behaviors in economical phenomena, and end with a new Economics.

Also because of the plenty data records of different systems in our economy behavior, it’s a treasure to physicists, especially to the one being interested in Complex Systems, in which many subsystems and many variables interact together. And the development of Economics also provide many open questions, like stock price, exchange rate and risk management, which may require technics dealing with mass data and complex systems.

Physics tries to construct a picture of the movement of the whole nature. Mechanism is the first topic cared by physicists. So trying to describe and understand the phenomena is the first step of econophysicists facing the mass data in economical phenomena. Till now, we have to say, the most works in Econophysics are empirical study of different phenomena to discover some universal or special laws, and also some initial effort about models and mechanism.

Therefor, in this talk, we will begin with three examples of empirical works in Econophysics, and discuss very shortly about the corresponding models and mechanism. Focus will be on the Physics of Econophysics, to present the power of Physics to Econophysics and some benefit which Physics will get from Econophysics.

Recent works in Econophysics mainly in three objects. First one is the time series of stock prices, exchange rates and prices of goods. Size of firms, GDP, individual wealth and income are the second topic, which can be regarded as wealth of different communities. The third one is network analysis of economical phenomena.

Fluctuation of stock prices and exchange rates

The prices of stocks are recorded every minute or every few second everyday in stock market all over the world. The price of a stock is driven by many factors, such as the whole economy environment, achievement of enterprise, the prices of other stocks, and by the buying or selling activity of stockholders. At the same time, the behavior of stockholders is effected by the price, and further more, everyone has his/her own decision which is different with each other, but effected each other. So such phenomena seem complex. While every enterprise has its own characters, and every stockholder decide his/her behavior on his/her own knowledge, information and belief, and every stock market has its own environment, the empirical study shows some common stylized facts valid for almost all stocks.

A typical time series of stock price, SP500 index, denoted as , is showed in figure 1. Actually SP500 is a stock index, which is a weighted mean value of stocks in a market, can be used as a indicator of stock price. Some papers use the data of indexes, some use individual stock, and also some paper investigate all stocks in a market as an ensemble of stocks. In this talk, we just use analysis of individual stock as examples.

Fig 1. Figures extracted from [5 ], time series of stock price. The first two figures at bottom are time series of return while the last one is a Gaussian noise

Because economy is in growth, so the time series of stock price has a long term trend to increase. This means it’s nonstationary. So other than the original price, other quantities like different and return may be better to use as analysis object. The difference is defined as