Financial interaction networks inferred from traded volumes

DOI10.1088/1742-5468/2014/07/P07008zbMATH Open1456.91126arXiv1311.3871MaRDI QIDQ3301995FDOQ3301995

Authors: Hongli Zeng, Rémi Lemoy, Mikko J. Alava 

Publication date: 11 August 2020

Published in: Journal of Statistical Mechanics: Theory and Experiment (Search for Journal in Brave)

Abstract: In order to use the advanced inference techniques available for Ising models, we transform complex data (real vectors) into binary strings, by local averaging and thresholding. This transformation introduces parameters, which must be varied to characterize the behaviour of the system. The approach is illustrated on financial data, using three inference methods -- equilibrium, synchronous and asynchronous inference -- to construct functional connections between stocks. We show that the traded volume information is enough to obtain well known results about financial markets, which use however the presumably richer price information: collective behaviour ("market mode") and strong interactions within industry sectors. Synchronous and asynchronous Ising inference methods give results which are coherent with equilibrium ones, and more detailed since the obtained interaction networks are directed.

Full work available at URL: https://arxiv.org/abs/1311.3871

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Mathematics Subject Classification ID

Applications of statistical and quantum mechanics to economics (econophysics) (91B80) Dynamic lattice systems (kinetic Ising, etc.) and systems on graphs in time-dependent statistical mechanics (82C20) Financial networks (including contagion, systemic risk, regulation) (91G45)

Cites Work

• Fast unfolding of communities in large networks
• Theory of Financial Risk and Derivative Pricing
• HERD BEHAVIOR AND AGGREGATE FLUCTUATIONS IN FINANCIAL MARKETS
• Random matrix ensembles of time-lagged correlation matrices: derivation of eigenvalue spectra and analysis of financial time-series
• The effect of nonstationarity on models inferred from neural data

Cited In (3)

• The appropriateness of ignorance in the inverse kinetic Ising model
• The backbone of the financial interaction network using a maximum entropy distribution
• Unveiling the relation between herding and liquidity with trader lead-lag networks

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