Dissecting financial markets: sectors and states

DOI10.1088/1469-7688/2/4/305MaRDI QIDQ4646791zbMATH OpenOpenAlexFDO

Authors Matteo Marsili

Publication date 14 January 2019

Published in Quantitative Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/cond-mat/0207156

zbMATH Keywords

data clustering techniqueeconomic sectorsfinancial marketsmarket states

Mathematics Subject Classification ID

Applications of statistics to actuarial sciences and financial mathematics (62P05) Actuarial science and mathematical finance (91G99)

Abstract: By analyzing a large data set of daily returns with data clustering technique, we identify economic sectors as clusters of assets with a similar economic dynamics. The sector size distribution follows Zipf's law. Secondly, we find that patterns of daily market-wide economic activity cluster into classes that can be identified with market states. The distribution of frequencies of market states shows scale-free properties and the memory of the market state process extends to long times ($sim50$ days). Assets in the same sector behave similarly across states. We characterize market efficiency by analyzing market's predictability and find that indeed the market is close to being efficient. We find evidence of the existence of a dynamic pattern after market's crashes.

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Cites work

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• scientific article; zbMATH DE number 1091847 (Why is no real title available?)
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Cited in

(21)

• Scale invariance and criticality in financial markets
• Ordinal synchronization and typical states in high-frequency digital markets
• New collectivity measures for financial covariances and correlations
• PCA meets RG
• Criticality of mostly informative samples: a Bayesian model selection approach
• Statistical criticality arises in most informative representations
• Detecting intraday financial market states using temporal clustering
• Agglomerative likelihood clustering
• A new attempt to identify long-term precursors for endogenous financial crises in the market correlation structures
• Cleaning large correlation matrices: tools from random matrix theory
• Forecasting market states
• Dynamic instability in a phenomenological model of correlated assets
• SECTOR DECOMPOSITION
• Uncovering the dynamics of correlation structures relative to the collective market motion
• Asset-asset interactions and clustering in financial markets
• Identifying dominant industrial sectors in market states of the S&P 500 financial data
• Information theory applied to econophysics: stock market behaviors
• Permutation invariant Gaussian matrix models for financial correlation matrices
• Improving out-of-sample forecasts of stock price indexes with forecast reconciliation and clustering
• Noise-robust orthogonal clustering and applications to equity markets
• Inter-pattern speculation: beyond minority, majority and \$-games

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