Asset-asset interactions and clustering in financial markets

Details Asset-asset interactions and clustering in financial markets Asset-asset interactions and clustering in financial markets

2001-09-03

arxiv.org/abs/cond-mat/0109026v1

Physica A 299, 263-268 (2001)

Physics

Condensed Matter

Disordered Systems and Neural Networks

6 pages, 3 figures

Scientific paper

10.1016/S0378-4371(01)00304-1

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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