The 2008 financial crisis was driven by friction, while the COVID-19 crash was driven by information, according to the laws of thermodynamics.
April 25, 2026
Original Paper
Irreversibility Field Anatomy: Probability Currents, Housekeeping-Excess Decomposition, and Fundamental Bounds on Strategy Capacity
SSRN · 6606258
The Takeaway
Stock markets behave like physical systems subject to entropy and heat flow. Researchers used non-equilibrium thermodynamics to analyze market irreversibility during major crashes. This approach reveals that different crises have entirely different physical signatures. One is a failure of the system's mechanics, while the other is a collapse of its information processing. Treating the market as a physical field provides a new way to predict and manage systemic risk.
From the abstract
We introduce the Irreversibility Field Anatomy (IFA), a quantitative research framework that characterizes equity markets as thermodynamic non-equilibrium systems. The framework constructs three empirical objects from return covariance matrices alone: (1) the probability current field J(x; t), measuring net probability flux in state space; (2) the entropy production rate (EPR) field Φ, which is strictly positive for irreversible dynamics and zero only under detailed balance; and (3) a Hatano-Sas