Dynamics and Structure of a Set of Stocks

Proceedings of the Third International Conference on Business, Management, and Economics, 2007

17 Pages Posted: 22 Sep 2007

See all articles by Juan Gabriel Brida

Juan Gabriel Brida

Universidad de la República

Wiston Adrián Risso

University of Siena - Department of Economics

Abstract

In this paper we combine the Symbolic Time Series methods (Daw et. al., 2003) with the nearest neighbour single linkage clustering algorithm (Mantegna, 1999) to describe dynamics and structure of a set of stocks. We start with a partition of the time series state space; we label each piece of the partition by a symbol and convert the original time series into a symbolic sequence. Then we introduce a metric distance between two symbolic time series that is used to construct a Minimal Spanning Tree permitting to compute an ultrametric distance. By analyzing the data, we derive a hierarchical organization. From this analysis we can detect different clusters of companies according to their proximity which correspond with their common behaviour. The obtained classification can be used to analyze deep relationships among different branch of economic activities and can be a tool in portfolio construction.

Keywords: Symbolic Time Series Analysis, Financial Asset Returns, hierarchical tree

JEL Classification: C10, C14, G10

Suggested Citation

Brida, Juan Gabriel and Risso, Wiston Adrián, Dynamics and Structure of a Set of Stocks. Proceedings of the Third International Conference on Business, Management, and Economics, 2007, Available at SSRN: https://ssrn.com/abstract=1016051

Juan Gabriel Brida

Universidad de la República ( email )

Av. 18 de Julio
Montevideo, 1968
Uruguay

Wiston Adrián Risso (Contact Author)

University of Siena - Department of Economics ( email )

Piazza S. Francesco, 7
Siena, I-53100
Italy
00390577235058 (Phone)