Econophysics: Two-phase behaviour of financial markets

Buying and selling in financial markets is driven by demand, which can be quantified by the imbalance in the number of shares transacted by buyers and sellers over a given time interval. Here we analyse the probability distribution of demand, conditioned on its local noise intensity Σ, and discover the surprising existence of a critical threshold, Σc. For Σ < Σc, the most probable value of demand is roughly zero; we interpret this as an equilibrium phase in which neither buying nor selling predominates. For Σ > Σc, two most probable values emerge that are symmetrical around zero demand, corresponding to excess demand and excess supply; we interpret this as an out-of-equilibrium phase in which the market behaviour is mainly buying for half of the time, and mainly selling for the other half.