The Quantum Network of Assets: A Non-Classical Framework for Market Correlation and Structural Risk

Hui Gong, Akash Sedai and Francesca Medda

Papers from arXiv.org

Abstract: Classical correlation matrices capture only linear and pairwise co-movements, leaving higher-order, nonlinear, and state-dependent interactions of financial markets unrepresented. This paper introduces the Quantum Network of Assets (QNA), a density-matrix based framework that embeds cross-asset dependencies into a quantum-information representation. The approach does not assume physical quantum effects but uses the mathematical structure of density operators, entropy, and mutual information to describe market organisation at a structural level. Within this framework we define two structural measures: the Entanglement Risk Index (ERI), which summarises global non-separability and the compression of effective market degrees of freedom, and the Quantum Early-Warning Signal (QEWS), which tracks changes in entropy to detect latent information build-up. These measures reveal dependency geometry that classical covariance-based tools cannot capture. Using NASDAQ-100 data from 2024-2025, we show that quantum entropy displays smoother evolution and clearer regime distinctions than classical entropy, and that ERI rises during periods of structural tightening even when volatility remains low. Around the 2025 US tariff announcement, QEWS shows a marked pre-event increase in structural tension followed by a sharp collapse after the announcement, indicating that structural transitions can precede price movements without implying predictive modelling. QNA therefore provides a structural diagnostic of market fragility, regime shifts, and latent information flow. The framework suggests new directions for systemic risk research by linking empirical asset networks with tools from quantum information theory.

Date: 2025-11, Revised 2025-11
New Economics Papers: this item is included in nep-ecm and nep-net
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