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Multiscale correlation networks analysis of the US stock market: a wavelet analysis

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  • Gang-Jin Wang

    (Hunan University
    Boston University)

  • Chi Xie

    (Hunan University)

  • Shou Chen

    (Hunan University)

Abstract

We investigate the interaction among stocks in the US market over various time horizons from a network perspective. Unlike the high-frequency data-driven multiscale correlation networks used in previous works, we propose method-driven multiscale correlation networks that are constructed by wavelet analysis and topological methods of minimum spanning tree (MST) and planar maximally filtered graph (PMFG). Using these techniques, we construct MST and PMFG networks of the US stock market at different time scales. The key empirical results show that (1) the topological structures and properties of networks vary across time horizons, (2) there is a sectoral clustering effect in the networks at small time scales, and (3) only a part of connections in the networks survives from one time scale to the next. Our results in terms of MSTs and PMFGs for different time scales supply a new perspective for participants in financial markets, especially for investors or hedgers who have different investment or hedging horizons.

Suggested Citation

  • Gang-Jin Wang & Chi Xie & Shou Chen, 2017. "Multiscale correlation networks analysis of the US stock market: a wavelet analysis," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 12(3), pages 561-594, October.
    • Handle: RePEc:spr:jeicoo:v:12:y:2017:i:3:d:10.1007_s11403-016-0176-x
    DOI: 10.1007/s11403-016-0176-x
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    More about this item

    Keywords

    Econophysics; Networks; Stock market; Wavelet analysis; Minimum spanning tree; Planar maximally filtered graph;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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