Tribes under Threat – The Collective Behavior of Firms During the Stock Market Crisis

Tanya Araújo and Francisco Louçã ()

No 2008/28, Working Papers Department of Economics from ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa

Abstract: Due to their unpredictable behavior, stock markets are examples of complex systems. Yet, the dominant analysis of these markets as- sumes simple stochastic variations, eventually tainted by short-lived memory. This paper proposes an alternative strategy, based on a stochastic geometry de¯ning a robust index of the structural dynamics of the markets and based on notions of topology de¯ning a new coef- ficient that identifies the structural changes occurring on the S&P500 set of stocks. The results demonstrate the consistency of the random hypothesis as applied to normal periods but they also show its in- adequacy as to the analysis of periods of turbulence, for which the emergence of collective behavior of sectoral clusters of firms is mea- sured. This behavior is identified as a meta-routine.

Date: 2008-04
New Economics Papers: this item is included in nep-fmk
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