Reconstructing an Economic Space From A Market Metric

Physica A 323 (2003) 635-650

16 Pages Posted: 27 Jan 2015

See all articles by Rui Vilela Mendes

Rui Vilela Mendes

CMAF, Complexo Interdisciplinar UL and IPFN, Instituto Superior Técnico

Tanya Araújo

UECE - Research Unit on Complexity in Economics

F. Louçã

Technical University of Lisbon (UTL) - School of Economics and Management

Date Written: January 25, 2015

Abstract

Using a metric related to the returns correlation, a method is proposed to reconstruct an economic space from the market data. A reduced subspace, associated to the systematic structure of the market, is identified and its dimension related to the number of terms in factor models. Examples were worked out involving sets of companies from the DJIA and S&P500 indexes. Having a metric defined in the space of companies, network topology coefficients may be used to extract further information from the data. A notion of “continuous clustering” is defined and empirically related to the occurrence of market shocks.

Suggested Citation

Mendes, Rui Vilela and Araújo, Tanya and Louçã, Francisco, Reconstructing an Economic Space From A Market Metric (January 25, 2015). Physica A 323 (2003) 635-650, Available at SSRN: https://ssrn.com/abstract=2555211

Rui Vilela Mendes (Contact Author)

CMAF, Complexo Interdisciplinar UL and IPFN, Instituto Superior Técnico ( email )

Av. Rovisco Pais
Lisboa, 1049-001
Portugal

Tanya Araújo

UECE - Research Unit on Complexity in Economics ( email )

ISEG/UTL, Rua Miguel Lupi 20
Lisboa, 1249-078
Portugal

Francisco Louçã

Technical University of Lisbon (UTL) - School of Economics and Management ( email )

R. Miguel Lupi, 20
Lisbon, 1200
Portugal

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