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Adaptive market anomaly detection (AMAD): Enhancing minimum spanning tree stability in financial networks

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  • Pallotta, Alberto
  • Ciciretti, Vito

Abstract

This paper introduces the adaptive market anomaly detection (AMAD) transformation, which enhances minimum-spanning tree stability in financial networks by adaptively dampening extreme market movements while preserving essential return information. Empirical validation across multiple market regimes demonstrates that AMAD-preprocessed MSTs exhibit greater edge persistence, improved structural consistency, and superior risk-adjusted portfolio performance compared to MSTs constructed using raw returns.

Suggested Citation

  • Pallotta, Alberto & Ciciretti, Vito, 2025. "Adaptive market anomaly detection (AMAD): Enhancing minimum spanning tree stability in financial networks," Finance Research Letters, Elsevier, vol. 85(PD).
    • Handle: RePEc:eee:finlet:v:85:y:2025:i:pd:s1544612325012553
    DOI: 10.1016/j.frl.2025.107997
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    References listed on IDEAS

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