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The Spread of the Credit Crisis: View from a Stock Correlation Network

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  • Smith, Reginald
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    Abstract

    The credit crisis roiling the world's financial markets will likely take years and entire careers to fully understand and analyze. A short empirical investigation of the current trends, however, demonstrates that the losses in certain markets, in this case the US equity markets, follow a cascade or epidemic flow like model along the correlations of various stocks. A few images and explanation here will suffice to show the phenomenon. Also, whether the idea of "epidemic" or a "cascade" is a metaphor or model for this crisis will be discussed. Animations of the spread of the crisis are available at http://reggiesmithsci.googlepages.com/creditcrisis

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 12659.

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    Date of creation: 11 Nov 2008
    Date of revision: 02 Dec 2008
    Handle: RePEc:pra:mprapa:12659

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    Keywords: networks; econophysics; equities; stock market; correlation; credit crisis;

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    1. Campbell, John Y. & Hentschel, Ludger, 1992. "No news is good news *1: An asymmetric model of changing volatility in stock returns," Journal of Financial Economics, Elsevier, vol. 31(3), pages 281-318, June.
    2. Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Ebens, Heiko, 2001. "The distribution of realized stock return volatility," Journal of Financial Economics, Elsevier, vol. 61(1), pages 43-76, July.
    3. Rosario N. Mantegna, 1998. "Hierarchical Structure in Financial Markets," Papers cond-mat/9802256, arXiv.org.
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