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Asset-asset interactions and clustering in financial markets

G. Cuniberti·M. Porto·H. E. Roman
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Abstract

The collective phenomena of a liquid market is characterized in terms of a particle system scenario. This physical analogy enables us to disentangle intrinsic features from purely stochastic ones. The latter are the result of environmental changes due to a `heat bath' acting on the many-asset system, quantitatively described in terms of a time dependent effective temperature. The remaining intrinsic properties can be widely investigated by applying standard methods of classical many body systems. As an example, we consider a large set of stocks traded at the NYSE and determine the corresponding asset--asset `interaction' potential. In order to investigate in more detail the cluster structure suggested by the short distance behavior of the interaction potential, we perform a connectivity analysis of the spatial distribution of the particle system. In this way, we are able to draw conclusions on the intrinsic cluster persistency independently of the specific market conditions.

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G. Cuniberti, M. Porto, H. E. Roman. 2001-09-03. Asset-asset interactions and clustering in financial markets. https://doi.org/10.1016/s0378-4371(01)00304-1

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