Stochastic Flow Diagrams Add Topology to the Econometric Toolkit

45 Pages Posted: 20 Jan 2014 Last revised: 5 Jul 2015

See all articles by Marcos Lopez de Prado

Marcos Lopez de Prado

Cornell University - Operations Research & Industrial Engineering; Abu Dhabi Investment Authority; True Positive Technologies

Date Written: January 26, 2014


Just as Geometry could not help Euler solve the “Seven Bridges of Königsberg” problem, Econometric analysis or Linear Algebra alone are not able to answer many key questions about how financial markets coordinate. Statistical tables are detailed in terms of reporting estimated values, however that level of detail also obfuscates the logical and hierarchical relationships between variables.

Stochastic Flow Diagrams (SFDs) are more insightful than the standard collection of statistical tables because SFDs shift the focus from the algebraic solution of the system to its logical structure. SFDs open the possibility to apply Topology and Graph Theory results to the study of Economic and Financial systems.

Keywords: Time Series, Graph Theory, Topology, Financial Flows, Macro Trading

JEL Classification: G0, G1, G2, G15, G24, E44

Suggested Citation

López de Prado, Marcos and López de Prado, Marcos, Stochastic Flow Diagrams Add Topology to the Econometric Toolkit (January 26, 2014). Available at SSRN: or

Marcos López de Prado (Contact Author)

Cornell University - Operations Research & Industrial Engineering ( email )

237 Rhodes Hall
Ithaca, NY 14853
United States


Abu Dhabi Investment Authority ( email )

211 Corniche Road
Abu Dhabi, Abu Dhabi PO Box3600
United Arab Emirates


True Positive Technologies ( email )

United States


Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
PlumX Metrics