Correlations, Risk and Crisis: From Physiology to Finance
AbstractWe study the dynamics of correlation and variance in systems under the load of environmental factors. A universal effect in ensembles of similar systems under the load of similar factors is described: in crisis, typically, even before obvious symptoms of crisis appear, correlation increases, and, at the same time, variance (and volatility) increases too. This effect is supported by many experiments and observations of groups of humans, mice, trees, grassy plants, and on financial time series. A general approach to the explanation of the effect through dynamics of individual adaptation of similar non-interactive individuals to a similar system of external factors is developed. Qualitatively, this approach follows Selye's idea about adaptation energy.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 0905.0129.
Date of creation: May 2009
Date of revision: Aug 2010
Publication status: Published in Physica A 389 (2010), 3193-3217
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-09-26 (All new papers)
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