The use of dynamical networks to detect the hierarchical organization of financial market sectors

Di Matteo, T. and Pozzi, Francesca and Aste, Tomaso (2010) The use of dynamical networks to detect the hierarchical organization of financial market sectors. European Physical Journal B: Condensed Matter and Complex Systems, 73 (1). pp. 3-11. ISSN 1434-6028. (Full text available)

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http://dx.doi.org/10.1140/epjb/e2009-00286-0

Abstract

Two kinds of filtered networks: minimum spanning trees (MSTs) and planar maximally filtered graphs (PMFGs) are constructed from dynamical correlations computed over a moving window. We study the evolution over time of both hierarchical and topological properties of these graphs in relation to market fluctuations. We verify that the dynamical PMFG preserves the same hierarchical structure as the dynamical MST, providing in addition a more significant and richer structure, a stronger robustness and dynamical stability. Central and peripheral stocks are differentiated by using a combination of different topological measures. We find stocks well connected and central; stocks well connected but peripheral; stocks poorly connected but central; stocks poorly connected and peripheral. It results that the Financial sector plays a central role in the entire system. The robustness, stability and persistence of these findings are verified by changing the time window and by performing the computations on different time periods. We discuss these results and the economic meaning of this hierarchical positioning.

Item Type: Article
Subjects: Q Science
Divisions: Faculties > Science Technology and Medical Studies > School of Physical Sciences
Faculties > Science Technology and Medical Studies > School of Physical Sciences > Functional Materials Group
Depositing User: Tomaso Aste
Date Deposited: 20 Mar 2012 16:21
Last Modified: 16 Jul 2014 14:01
Resource URI: http://kar.kent.ac.uk/id/eprint/29171 (The current URI for this page, for reference purposes)
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