Financial Atoms and Molecules

Details Financial Atoms and Molecules Financial Atoms and Molecules

2009-03-12

arxiv.org/abs/0903.2099v1

Economy

Quantitative Finance

General Finance

19 pages in RevTeX4 format, 15 figures

Scientific paper

Atoms and molecules are important conceptual entities we invented to understand the physical world around us. The key to their usefulness lies in the organization of nuclear and electronic degrees of freedom into a single dynamical variable whose time evolution we can better imagine. The use of such effective variables in place of the true microscopic variables is possible because of the separation between nuclear/electronic and atomic/molecular time scales. Where separation of time scales occurs, identification of analogous objects in financial markets can help advance our understanding of their dynamics. To detect separated time scales and identify their associated effective degrees of freedom in financial markets, we devised a two-stage statistical clustering scheme to analyze the price movements of stocks in several equity markets. Through this two-time-scale clustering analysis, we discovered a hierarchy of levels of self-organization in real financial markets. We call these statistically robust self-organized dynamical structures financial atoms, financial molecules, and financial supermolecules. In general, the detailed compositions of these dynamical structures cannot be deduced based on raw financial intuition alone, and must be explained in terms of the underlying portfolios, and investment strategies of market players. More interestingly, we find that major market events such as the Chinese Correction and the Subprime Crisis leave many tell-tale signs within the correlational structures of financial molecules.

Affiliated with

Also associated with

No associations

Rating

Financial Atoms and Molecules does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with Financial Atoms and Molecules, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Financial Atoms and Molecules will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-35958