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Reconstructing an economic space from a market metric

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  • R. Vilela Mendes
  • Tanya Ara\'{u}jo
  • Francisco Lou\c{c}\~{a}

Abstract

Using a metric related to the returns correlation, a method is proposed to reconstruct an economic space from the market data. A reduced subspace, associated to the systematic structure of the market, is identified and its dimension related to the number of terms in factor models. Example were worked out involving sets of companies from the DJIA and S&P500 indexes. Having a metric defined in the space of companies, network topology coefficients may be used to extract further information from the data. A notion of "continuous clustering" is defined and empirically related to the occurrence of market shocks.

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File URL: http://arxiv.org/pdf/cond-mat/0211108
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Bibliographic Info

Paper provided by arXiv.org in its series Papers with number cond-mat/0211108.

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Date of creation: Nov 2002
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Publication status: Published in Physica A 323 (2003) 635
Handle: RePEc:arx:papers:cond-mat/0211108

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Web page: http://arxiv.org/

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References

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  1. Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December.
  2. Richard B. Olsen & Michel M. Dacorogna & Ulrich A. Muller, & Olivier V. Pictet, . "Going Back to the Basics - Rethinking Market Efficiency," Working Papers 1992-09-07., Olsen and Associates.
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Cited by:
  1. Tanya Araújo & Francisco Louçã, 2008. "Trouble Ahead – The Subprime Crisis as Evidence of a New Regime in the Stock Market," Working Papers Department of Economics 2008/26, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  2. Tanya Araujo & Francisco Louca, 2007. "The geometry of crashes. A measure of the dynamics of stock market crises," Quantitative Finance, Taylor & Francis Journals, vol. 7(1), pages 63-74.
  3. Tanya Araujo & João Dias & Samuel Eleutério & Francisco Louçã, 2012. "How Fama Went Wrong: Measures of Multivariate Kurtosis for the Identification of the Dynamics of a N-Dimensional Market," Working Papers Department of Economics 2012/21, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  4. João Lopes, 2011. "Industrial Clustering and Sectoral Growth: a Network Dynamics Approach," ERSA conference papers ersa11p637, European Regional Science Association.
  5. Tanya Araújo & Francisco Louçã, 2008. "The Dynamics of Speculative Markets: The Case of Portugal’s PSI20," Working Papers Department of Economics 2008/34, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  6. João Carlos Lopes & Tanya Araujo, 2012. "The economic performance of Portuguese and Spanish regions: A network dynamic approach," Working Papers Department of Economics 2012/04, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  7. João C. Lopes & Tanya Araújo & João Dias & João F. Amaral, 2010. "National industry cluster templates and the structure of industry output dynamics: a stochastic geometry approach," Working Papers Department of Economics 2010/20, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  8. Tanya Ara\'ujo & Jo\~ao Dias & Samuel Eleut\'erio & Francisco Lou\c{c}\~a, 2012. "How Fama Went Wrong: Measures of Multivariate Kurtosis for the Identification of the Dynamics of a N-Dimensional Market," Papers 1207.1202, arXiv.org.

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