The Spread of the Credit Crisis: View from a Stock Correlation Network

Details The Spread of the Credit Crisis: View from a Stock Correlation Network The Spread of the Credit Crisis: View from a Stock Correlation Network

2009-01-10

arxiv.org/abs/0901.1392v5

J Korean Phys. Soc. 54, 6, p. 2460-2463 (2009)

Economy

Quantitative Finance

Statistical Finance

4 pages, 3 figures; to appear in the Journal of the Physical Society of Korea; animations of credit crisis spread available at

Scientific paper

The credit crisis roiling the world's financial markets will likely take years and entire careers to fully understand and analyze. A short empirical investigation of the current trends, however, demonstrates that the losses in certain markets, in this case the US equity markets, follow a cascade or epidemic flow like model along the correlations of various stocks. This phenomenon will be shown by the graphical display of stock returns across the network as well as the dependence of stock returns on topological measures. Finally, whether the idea of "epidemic" or a "cascade" is a metaphor or model for this crisis will be discussed.

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