Statistical validation of financial time series via visibility graph

Matteo Serafino, Andrea Gabrielli, Guido Caldarelli and Giulio Cimini

Papers from arXiv.org

Abstract: Statistical physics of complex systems exploits network theory not only to model, but also to effectively extract information from many dynamical real-world systems. A pivotal case of study is given by financial systems: market prediction represents an unsolved scientific challenge yet with crucial implications for society, as financial crises have devastating effects on real economies. Thus, nowadays the quest for a robust estimator of market efficiency is both a scientific and institutional priority. In this work we study the visibility graphs built from the time series of several trade market indices. We propose a validation procedure for each link of these graphs against a null hypothesis derived from ARCH-type modeling of such series. Building on this framework, we devise a market indicator that turns out to be highly correlated and even predictive of financial instability periods.

Date: 2017-10
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