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 February 2015
EPL, 109 (2015) 30001 www.epljournal.org
doi: 10.1209/0295-5075/109/30001

Financial market images: A practical approach owing to the secret

quantum potential
F. Tahmasebi1 , S. Meskinimood1 , A. Namaki2 , S. Vasheghani Farahani3 , S. Jalalzadeh1 and G. R. Jafari1
1
Department of Physics, Shahid Beheshti University - G.C., Evin, Tehran 19839, Iran
2
Department of Financial Management, Faculty of Management, University of Tehran - Tehran, Iran
3
Department of Physics, Tafresh University - P.O. Box 39518-79611, Tafresh, Iran

received 24 October 2014; accepted in final form 16 January 2015

published online 12 February 2015

PACS 02.50.-r – Probability theory, stochastic processes, and statistics

PACS 02.50.Ey – Stochastic process
PACS 03.65.Ud – Entanglement and nonlocality (e.g. EPR paradox, Bell’s inequalities,
GHZ states, etc.)

Abstract – We unveil secrets of the financial markets that prove very effective on shaping their
future. The question to be answered is why instant high amplitude variations of price returns are
never experienced. We deduce that the key to shedding light on this issue is the quantum potential
whose existence is due to the entanglement between a price and its prior-day price. Implementing
the quantum potential would enable us to sketch a robust pattern for the price return fluctuations
of a financial market. As such, we model real markets by the Bohmian quantum approach bearing
a quantum potential that guides the price return fluctuations. Strictly speaking, we show that this
quantum potential confines the price returns of real markets in a scale-invariant manner, which
proves to be different for emerging and efficient markets. By modelling the oil and gold markets
we see that a 20 day time scale is enough to exhibit the class difference of the scaling behaviour.
The appearance of this characteristic time scale lies in the fact that oil and gold markets are
influenced by short- and long-term programs. This statement is supported by the fact that short-
term programs are due to the market supply and demand, while long-term programs are due to
political and natural factors. In short times the potential is very efficiently controlling the market
showing a big margin against a white noise, while in the long run the potential is not as efficient
as before tending to look more like a white noise. This is due to the widening of the boundaries
disabling the quantum potential efficiency on controlling the market, and hence justifying the
model.

Copyright 
c EPLA, 2015

It is now very well understood that classical physics is
unable to address all aspects of the events in our sur-
roundings. This is because of the complexity possessed
by some events due to their time-correlated characteris-
tics. To study the dynamics of time-dependent events,
the implementation of evolutionary differential equations
is essential, where in most cases it involves higher-order
differential equations. However the events under consid-
eration in this study are time dependent where the time
steps might not possess equal weights. Hence, non-linear
differential equations are implemented, which usually do
not give out their solutions trivially. However it was quan-
tum mechanics that enabled the extraction of a solution
for such equations, which was done by just losing some
local information. The reason for this is that in quantum
mechanics the implementation of a broad wave function in
space and time, loses some local information on space and
time. This means that two points in one wave function
are entangled to each other in a way that their existence
is due to one another. This convention of quantum me-
chanics provided its advantage over classical mechanics,
since it enabled the governing (Schrödinger) equations of
events to be linear and analytically solvable. Nonethe-
less, to comply with the aims of this work the quantum
approach is essential due to the fact that all events are
entangled to events prior to them. The entanglement in
space and time means that future events inherit from the
past; where there is a saying that history paves the way
for the future.
To study the economical markets and their trends, im-
plementation of a quantum approach may prove conclu-
sive. As such a sensible tool is the Bohmian quantum

30001-p1
F. Tahmasebi et al.
mechanics, see, e.g., refs. [1] for a numerical and [2] for
an analytical illustration. This view was first presented
by Louis de Broglie in 1927, and was later rediscovered by
David Bohm in 1952 [3,4].
To illustrate how Bohmian mechanics complies with our
understanding on correlated systems, e.g. financial mar-
kets, we must first express the two relations that provide
its foundation:
 
2 ∂s
∂ R
∂R2 1 ∂q
+ = 0,
∂t m ∂q
 2
∂S 1 ∂S
+ + (V − U ) = 0. (1)
∂t 2m ∂q
The first relation deals with the non-locality, while the
second is a classical motion equation that determines the
position of particles [3]. Note that in obtaining the first
relation, the particles that comprise the system are con-
sidered as a wave function. This Bohmian wave function
is described as
 
S(q, t)
ψ(q, t) = R(q, t) exp i , (2)
h̄
which evolves according to Schrödinger’s equation, with
R(q, t) and S(q, t) being the amplitude and phase of the
wave function, respectively. The second relation of eq. (1)
exhibits information on the scale in which particles are de-
pendent on one another through the wave function. This
statement roots in the fact that expressions in eq. (1) are
obtained by substituting the wave function (ψ(q, t)) in the
Schrödinger equation before twice differentiating it.
It could readily be noticed by looking at the second
expression in eq. (1) that there exists an additional po-
tential, represented by U named as the Bohm quantum
potential [3,5], defined as
h̄2 ∂ 2 R
U= , (3)
2mR ∂q 2
where in application to the markets, m would indicate the
volume of the market, and S(q, t)/h̄ the phase of the wave
function would correspond to the price return. The pa-
rameters m and S(q, t)/h̄ only come into play when we
talk of two or more wave functions, where each refers to a
specific market. In other words studying their combined
effects is only meaningful when two or more markets are
taken under consideration.
In a series of studies Choustova used the quantum po-
tential as a method for describing the mental factors or
psychological aspects of the markets, in order to study
the price trajectories of the market. Their reasoning is
based on the fact that traders in financial markets behave
stochastically due to the free wills of individuals. This
would lead to the conclusion that the combination of a
huge number of free wills involved in a market brings the
need for an additional stochastic term which rules out clas-
sical physics for being able to describe it, see [6–8]. The
30001-p2
reason for this shortcoming of the classical approach which
has also been discussed with the use of the field of com-
plexity by Khrennikov [9], is that in quantum mechanics
the look is non-local. Note that in quantum mechanics
for dealing with events the working tool is the wave func-
tion. Now the broadening of the wave packet would consist
of more and more points, having more entangled points.
This means that as long as a point constitutes in a wave
packet, it is effective on other events. Hence the term non-
local is implemented. This is a domain where classical
mechanics lacks applicability. This causes the collective
characteristics of the system to emerge. The term local
in the context of the present study refers to the price re-
turn per day. Now instead of a daily basis consideration
of the price return (a local viewpoint), consider the price
return of a time period consisting of a number of days en-
tangled to each other. Hence, a wave function must be
implemented. It is this entanglement [10] that creates the
collective behaviour, that in this work is referred to as
the quantum potential. To give a flavour of what a clas-
sic potential in application to the present study could be,
we believe that the classical potential corresponds to the
financial conditions of markets such as natural resources
and tough relations between traders [5]. However models
developed for quantum finance [11–13] have been widely
implemented in application to, e.g., interest rates [14,15],
uncertainty [16], option pricing [17,18], etc.
But what still lacks is implementing the developed tech-
niques to model real financial markets in the context of
price returns. To state it clearer, the combined effects of
the classical and quantum potentials foreseen in the model
needs to be able to stand the test for real markets. Note
that all these mathematical models are founded on the
fact that the markets are efficient. In other words, the
models are all based on the efficient market hypothesis
(EMH) [19,20], where the investors are considered ratio-
nal, as most investors really are. The term efficient refers
to a market where all factors have already affected the
prices and any random information would randomly ef-
fect the prices of goods [20]. Note that empirical studies
have put a question mark on the random behaviour of
real prices; saying that they do not completely follow a
random walk which is the criterion of EMH, see [21] and
references therein. In this line we have implemented the
method proposed by Choustova in order to extract the in-
formation content of financial return time series. We have
used a range of data covering securities from the Tehran
stock exchange (TSE) as an emergent market [22,23], Dow
Jones Industrial Average (DJIA30), Standard and Poor’s
500 (S&P500) indices from a mature market, and gold
and West Texas intermediate oil prices as commodity mar-
kets. The analysis has been carried out based on the daily
changes of these markets from the 1st of Jan. 1996 until
1st of Jan. 2011.
In order to face the facts, the quantum potential
is implemented for modelling real markets. The out-
come would provide information on the expectations
 Financial market images: A practical approach owing to the secret quantum potential

and restrictions on the market under consideration. In 120 0.02

Day Week
this line, the probability distribution function of the 100
S&P 500
S&P500
Gaussian

price return which is represented by R is extracted Gaussian 0.015

Quantum Potential
Quantum Potential
80

from the market and substituted in eq. (3), where 60 0.01

the quantum potential of that market in terms of its 40

0.005
price returns is obtained. However, the price return 20

q(t) = ln(price(t + τ )) − ln(price(t)) could vary with the 0

-0.1 -0.05 0 0.05 0.1
0
-0.2 -0.1 0 0.1 0.2
q ( return) q ( return)
time scale τ . By having in hand information on the quan-
tum potential based on the desired time scales, valuable 0.02
Season
0.006
Year

information is obtained on the restrictions put on the price S&P500

Gaussian
0.005 S&P500
Gaussian
0.015

returns of that market. Hence, we carry out a case study

Quantum Potential
Quantum Potential
0.004

on a typical market. To name a very famous market to 0.01 0.003

be taken under consideration, one may say the S&P. In 0.005

0.002

fig. 1 the quantum potential is obtained for the S&P in 0.001

four time scales namely, daily, weekly, seasonally, yearly, 0

-0.6 -0.4 -0.2 0
q ( return)
0.2 0.4
0
-0.5 0
q ( return)
0.5

shown in the four panels, where all four are plotted on

daily basis estimations. Owing to the educational aspect
of this study, we compare the quantum potential for S&P
with the quantum potential of a corresponding Gaussian
white noise with the same variance; where the white noise
concept corresponds to a community which is not biased
by the prices prior to its date. Mathematically speaking,
the function R for a white noise which is a Gaussian func-
tion represented by exp(−(q−q0 )2 )/2σ 2 ; when substituted
in eq. (3) gives the quantum potential of the white noise
 
4(q − q0 )2 2q
U= − 2 , (4)
4σ 4 2σ
where q0 represents the average variations of the real mar-
ket price returns under comparison, and σ is the variance.
Note that q0 and σ take values from their corresponding
real markets.
The quantum potential for a Gaussian white noise is in-
dicated by the dashed curves in the four panels of fig. 1. It
could readily be noticed by looking at the dashed curves in
all four panels that since the white noise does not possess
infinitely high walls, any value even very small is probable
for it in all four time periods. It could also be noticed
by comparing the four panels of fig. 1 with each other
that as the time scale grows, the Bohmian potential (solid
curves) against the price returns tends to the white noise
(dashed curve). In a sense that the potential walls when
plotted for a daily time scale (top left panel) only allows
variations for the price return up to less than 10 percent.
But when the potential is plotted for a weekly time scale
(top right panel), the variations are allowed up to a bit
more then ten percent. Keeping its course, as the quan-
tum potential is plotted for a seasonally time scale (bot-
tom left) the variations are tolerated up to around forty
percent. Interestingly the quantum walls are tending to
the white noise by having a slope other than 90 percent,
but still being similar to the daily and weekly time scales.
In the fourth panel of fig. 1 (bottom right), the quantum
potential looks quite similar to the Gaussian white noise.
However, although the walls are high, they still allow large
amplitude variations. This means that as the time scale
increases, the quantum potential of the real markets tends
Fig. 1: (Colour on-line) The quantum potential of return time
series of the S&P500 index (solid curves) together with the
quantum potential of a Gaussian white noise (dashed curve),
in daily, weekly, seasonally, and yearly time scales. Note that
the variance of the Gaussian white noise is the same as its
corresponding quantum potential in each panel.
to the Gaussian white noise. The results completely justify
the implemented methods, in a sense that if someone tells
us that the gold price has doubled since yesterday, no one
would believe. But if the same person gives the same state-
ment this time comparing it with last year, many might
believe. This is exactly what the bottom right panel of
fig. 1 states. To be clearer, there exists a quantum po-
tential for the financial markets which causes restrictions
for high amplitude changes with respect to time scales.
This is exactly what we experience in every day life. It
obviously shows the entanglement between prices of, e.g.,
today and of yesterday. It is this entanglement that de-
nies high amplitude variations of price returns in respect
to short time scales. This restriction on the prices makes
us believe that life is not that unfair.
This fairness is promoted by the presence of the quan-
tum potential that denies high amplitude variations of the
price returns in short time periods, due to existence of the
infinitely high walls of the quantum potential. But recall-
ing our obtained results that small amplitude variations
are permitted in short time scales, for instance, daily time
scales, the question that arises is: how do they behave?
To clarify the question: in case that the quantum poten-
tial allows the price return to vary (which could be about
10 percent in a few days), is there any sort of order in
the price return variations? The answer would surly help
investors to sense their benefits and prevent any loss in a
desired time scale. To find out how, the variation range
of the price returns of efficient and emerging markets to-
gether with oil and gold prices are plotted in terms of time
scales, see fig. 2. It could be deduced from both panels of
fig. 2 that all prices possess a scaling behaviour, this con-
firms the results for various markets published by Zhang
et al. [24] obtained by other methods. Going deeper, it

30001-p3
F. Tahmasebi et al.

2.5 justify this break a good candidate could be either gov-

2 Dow
S&P500 ernmental influences or political issues. Although it has
1.5 TSE
been several years since quantum mechanics has stepped
1 into finance, still forward modellings based on quantum
mechanics for empirical market data lack.
0.5 In the present study being as practical as possible, em-
ΔR

.4 1 pirical market data has been analysed and compared with

0
p e= the solutions extracted by our forward modelling based
Slo
9 0.
6 1 on the quantum Bohmian approach. We summarise our
0.3 e=
p e= o p finding as follows:
Slo Sl

– It is shown that the quantum potential provides

0 1 2
10 10 10 boundaries which confine the price return fluctuations
t (Daily) within their walls. In other words, by increasing the
potential, the possibility of a price return decreases.
3
2.5 These boundaries have a power law behaviour with
2 = 0 .1 8 time scale. The results are consistent with what
slope
1.5 we really experience in our societies (fig. 1). These
44
0. boundaries are also estimated analytically (eq. (4)).
1 e=
S lop

0 .2
6 – These boundaries are created by the entanglement
ΔR

0.5
5
0.
e=
S lop
100 101
t (Daily)
Fig. 2: (Colour on-line) Top panel: the comparison of the
scaling behaviors of the quantum potential for emerging and
mature markets. Bottom panel: the scaling behaviors of the
quantum potential for commodity markets.
could be deduced from the top panel that efficient markets
have a smaller exponent compared to the emerging mar-
kets, where it is 0.4 and 0.6 for the efficient and emerging
markets, respectively. This behaviour reminds us of the
Hurst exponent in emerging and efficient markets, where
it has been shown that the Hurst values for emerging
and efficient markets are greater and less than 0.5, re-
spectively, see [25,26]. But interestingly, the gold and oil
prices (bottom panel) possess a bi-scaling behaviour which
could readily be seen in the bottom panel of fig. 2. This
break uncovers a ten day timescale where before and after
it, the behaviour is different. This means that although
the prices possess a scaling behaviour, the scaling expo-
nent experiences a change of trend. This could be clarified
by the statement that before the cut-off, talking of short
scales, the most effective factor on market structures is
the competing attitude or nature of the firms in the sense
of supply and demand. This is called natural fluctuation
which depends on the scale of demand and supply. But
interestingly, in large scales, that is after the cut-off, the
most influential parameters that shape the behaviour of
the markets are the political and international macro sub-
jects. This means that short- and long-scale actions for
the oil and gold markets differ from the other markets. To
=
pe
S lo between price returns of consecutive days, in addition
to the their fat-tailed distributions. However, for the
Gaussian white noise, due to the fact that the walls
Gold are non-vertical, any thing could happen, though with
West texas intermediate
low probability.
102
– The distance between the walls which depends on the
time scale is a measure for the amplitude variations of
the price return. This time scale causes a divergence
between emerging and efficient markets, where the
efficiency is inversely proportional to the exponent.
– A bi-scaling feature has been detected for the oil and
gold markets. This is very possibly due to political
issues and international considerations.
In the end we state that although high amplitude price
fluctuations are impossible in short time scales, as we have
all hardly experienced otherwise, forward modelling price
fluctuations of various markets would prove adequate for
companies and individuals to act more rational on their
finances.
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