economics Collision

Stock market crashes follow the exact same mathematical laws as the way magnets change their physical properties.

April 23, 2026

Original Paper

Transverse-Field Ising Model as a Framework for Financial Markets

J. Lucas P. Carvalho, Leonardo Lima

SSRN · 6625481

The Takeaway

Stock market herding behaves the same way as the coupling that occurs in ferromagnetic materials. A model from quantum physics shows that independent decision-making acts like a transverse field against this herding force. Most analysts assume that markets are driven by human psychology or economic fundamentals that are unique to finance. This discovery suggests that market fragility can be measured using physics-based susceptibility tools. It implies that we might be able to predict a total market collapse by watching for the same signals we see in a cooling magnet.

From the abstract

This paper explores the transverse-field Ising model (TFIM) as a framework for understanding collective behavior in financial markets. Market participants are represented as interacting spins governed by two competing effects: ferromagnetic coupling, which drives herding, and a transverse-field that promotes independent decision-making. Under mean-field theory, the ordered and disordered phases map naturally onto trending and efficient market regimes, respectively. Coupling magnetization dynamic