6533b7d2fe1ef96bd125f782

RESEARCH PRODUCT

Hierarchical Structure in Financial Markets

Rosario N. Mantegna

subject

Statistical Finance (q-fin.ST)Statistical Mechanics (cond-mat.stat-mech)LogarithmFinancial marketStructure (category theory)Quantitative Finance - Statistical FinanceFOS: Physical sciencesDisordered Systems and Neural Networks (cond-mat.dis-nn)Condensed Matter - Disordered Systems and Neural NetworksTopological spaceCondensed Matter PhysicsTree (graph theory)Electronic Optical and Magnetic MaterialsFOS: Economics and businessComputer Science::Computational Engineering Finance and ScienceEconometricsGraph (abstract data type)PortfolioUltrametric spaceCondensed Matter - Statistical MechanicsMathematics

description

I find a topological arrangement of stocks traded in a financial market which has associated a meaningful economic taxonomy. The topological space is a graph connecting the stocks of the portfolio analyzed. The graph is obtained starting from the matrix of correlation coefficient computed between all pairs of stocks of the portfolio by considering the synchronous time evolution of the difference of the logarithm of daily stock price. The hierarchical tree of the subdominant ultrametric space associated with the graph provides information useful to investigate the number and nature of the common economic factors affecting the time evolution of logarithm of price of well defined groups of stocks.

yearjournalcountryeditionlanguage
1998-02-24
http://arxiv.org/pdf/cond-mat/9802256