Asset–asset interactions and clustering in financial markets

Gianaurelio Cuniberti, Markus Porto and H.Eduardo Roman

Physica A: Statistical Mechanics and its Applications, 2001, vol. 299, issue 1, 262-267

Abstract: The collective phenomena of a liquid market is characterized in terms of a particle system scenario. This physical analogy enables us to disentangle intrinsic features from purely stochastic ones. The latter are the result of environmental changes due to a ‘heat bath’ acting on the many-asset system, quantitatively described in terms of a time dependent effective temperature. The remaining intrinsic properties can be widely investigated by applying standard methods of classical many-body systems. As an example, we consider a large set of stocks traded at the NYSE and determine the corresponding asset–asset ‘interaction’ potential. In order to investigate in more detail the cluster structure suggested by the short distance behavior of the interaction potential, we perform a connectivity analysis of the spatial distribution of the particle system. In this way, we are able to draw conclusions on the intrinsic cluster persistency independent of the specific market conditions.

Keywords: Random walks; Complex systems; Financial markets (search for similar items in EconPapers)
Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:299:y:2001:i:1:p:262-267

DOI: 10.1016/S0378-4371(01)00304-1

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