IDEAS home Printed from https://ideas.repec.org/p/arx/papers/1210.8380.html
   My bibliography  Save this paper

Market structure explained by pairwise interactions

Author

Listed:
  • Thomas Bury

Abstract

Financial markets are a typical example of complex systems where interactions between constituents lead to many remarkable features. Here, we show that a pairwise maximum entropy model (or auto-logistic model) is able to describe switches between ordered (strongly correlated) and disordered market states. In this framework, the influence matrix may be thought as a dissimilarity measure and we explain how it can be used to study market structure. We make the link with the graph-theoretic description of stock markets reproducing the non-random and scale-free topology, shrinking length during crashes and meaningful clustering features as expected. The pairwise model provides an alternative method to study financial networks which may be useful for characterization of abnormal market states (crises and bubbles), in capital allocation or for the design of regulation rules.

Suggested Citation

  • Thomas Bury, 2012. "Market structure explained by pairwise interactions," Papers 1210.8380, arXiv.org, revised Jan 2014.
  • Handle: RePEc:arx:papers:1210.8380
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/1210.8380
    File Function: Latest version
    Download Restriction: no

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:1210.8380. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators). General contact details of provider: http://arxiv.org/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.