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Unveiling the connectivity structure of financial networks via high-frequency analysis

  • Materassi, Donatello
  • Innocenti, Giacomo
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    The paper deals with the problem of reconstructing the internal link structure of a network of agents subject to mutual dependencies. We show that standard multivariate approaches based on a correlation analysis are not well suited to detect mutual influences and dependencies, especially in the presence of delayed or propagative relations and when the sampling rate is sufficiently high to capture them. In particular, we develop and apply a metric based on the coherence function to take into account these dynamical phenomena. The effectiveness of the proposed approach is illustrated through numerical examples and through the analysis of a real complex networked system, i.e. a set of 100 high volume stocks of the New York Stock Exchange, observed during March 2008 and sampled at high frequency.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0378437109004324
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    Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

    Volume (Year): 388 (2009)
    Issue (Month): 18 ()
    Pages: 3866-3878

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    Handle: RePEc:eee:phsmap:v:388:y:2009:i:18:p:3866-3878
    Contact details of provider: Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

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    1. Tóth, Bence & Kertész, János, 2007. "On the origin of the Epps effect," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 383(1), pages 54-58.
    2. Naylor, Michael J. & Rose, Lawrence C. & Moyle, Brendan J., 2007. "Topology of foreign exchange markets using hierarchical structure methods," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 382(1), pages 199-208.
    3. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
    4. Rosario N. Mantegna, 1998. "Hierarchical Structure in Financial Markets," Papers cond-mat/9802256, arXiv.org.
    5. Bence Toth & Janos Kertesz, 2007. "On the origin of the Epps effect," Papers physics/0701110, arXiv.org, revised Feb 2007.
    6. Caines, P. E. & Keng, C. W. & Sethi, S. P., 1981. "Causality analysis and multivariate Autoregressive modelling with an application to supermarket sales analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 3(1), pages 267-298, November.
    7. E. Samanidou & E. Zschischang & D. Stauffer & T. Lux, 2007. "Agent-based Models of Financial Markets," Papers physics/0701140, arXiv.org.
    8. Tóth, Bence & Kertész, János, 2009. "Accurate estimator of correlations between asynchronous signals," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(8), pages 1696-1705.
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