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Explaining Dynamic Changes in Various Asset’s Relationships in Financial Markets

Author

Listed:
  • Makoto Naraoka

    (The University of Tokyo)

  • Teruaki Hayashi

    (The University of Tokyo)

  • Takaaki Yoshino

    (Nissay Asset Management Corp.)

  • Toshiaki Sugie

    (Nissay Asset Management Corp.)

  • Kota Takano

    (Nissay Asset Management Corp.)

  • Yukio Ohsawa

    (The University of Tokyo)

Abstract

We study the method for detecting relationship changes in financial markets and providing human-interpretable network visualization to support the decision-making of fund managers dealing with multi-assets. First, we construct co-occurrence networks with each asset as a node and a pair with a strong relationship in price change as an edge at each time step. Second, we calculate Graph-Based Entropy to represent the variety of price changes based on the network. Third, we apply the Differential Network to finance, which is traditionally used in the field of bioinformatics. By the method described above, we can visualize when and what kind of changes are occurring in the financial market, and which assets play a central role in changes in financial markets. Experiments with multi-asset time-series data showed results that were well fit with actual events while maintaining high interpretability. It is suggested that this approach is useful for fund managers to use as a new option for decision-making.

Suggested Citation

  • Makoto Naraoka & Teruaki Hayashi & Takaaki Yoshino & Toshiaki Sugie & Kota Takano & Yukio Ohsawa, 2021. "Explaining Dynamic Changes in Various Asset’s Relationships in Financial Markets," The Review of Socionetwork Strategies, Springer, vol. 15(2), pages 597-611, November.
    • Handle: RePEc:spr:trosos:v:15:y:2021:i:2:d:10.1007_s12626-021-00094-5
    DOI: 10.1007/s12626-021-00094-5
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    References listed on IDEAS

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    1. Sunil Kumar & Nivedita Deo, 2012. "Correlation, Network and Multifractal Analysis of Global Financial Indices," Papers 1202.0409, arXiv.org.
    2. P. Giudici & A. Spelta, 2016. "Graphical Network Models for International Financial Flows," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 34(1), pages 128-138, January.
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