Physics – Physics and Society
Scientific paper
2008-06-28
Physica A 388, 145 (2009)
Physics
Physics and Society
23 pages, 12 figures, 1 table. v2: 3 references added, minor revisions
Scientific paper
10.1016/j.physa.2008.10.007
We study the time dependence of maximal spanning trees and asset graphs based on correlation matrices of stock returns. In these networks the nodes represent companies and links are related to the correlation coefficients between them. Special emphasis is given to the comparison between ordinary and denoised correlation matrices. The analysis of single- and multi-step survival ratios of the corresponding networks reveals that the ordinary correlation matrices are more stable in time than the denoised ones. Our study also shows that some information about the cluster structure of the companies is lost in the denoising procedure. Cluster structure that makes sense from an economic point of view exists, and can easily be observed in networks based on denoised correlation matrices. However, this structure is somewhat clearer in the networks based on ordinary correlation matrices. Some technical aspects, such as the random matrix denoising procedure, are also presented.
Heimo Tapio
Kaski Kimmo K.
Saramaki Jari
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