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Centrality And Peripherality In Filtered Graphs From Dynamical Financial Correlations

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  • F. POZZI

    (Department of Applied Mathematics, The Australian National University, 0200 Canberra, ACT, Australia)

  • T. DI MATTEO

    (Department of Applied Mathematics, The Australian National University, 0200 Canberra, ACT, Australia)

  • T. ASTE

    (Department of Applied Mathematics, The Australian National University, 0200 Canberra, ACT, Australia)

Abstract

Minimum spanning trees and planar maximally filtered graphs are generated from correlations between the 300 most-capitalized NYSE stocks' daily returns, computed dynamically over moving windows of sizes between 1 and 12 months, in the period from 2001 to 2003. We study how different economic sectors differently populate the various regions of these graphs. We find that the financial sector is always at the center whereas the periphery is shared among different sectors. Four extremes are observed: stocks well-connected and central; stocks well-connected but at the same time peripheral; stocks poorly-connected but central; stocks poorly-connected and peripheral. Two principal components of centrality measures are individuated. The economic meaning of this hierarchical disposition is discussed.

Suggested Citation

  • F. Pozzi & T. Di Matteo & T. Aste, 2008. "Centrality And Peripherality In Filtered Graphs From Dynamical Financial Correlations," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 11(06), pages 927-950.
    • Handle: RePEc:wsi:acsxxx:v:11:y:2008:i:06:n:s0219525908002021
    DOI: 10.1142/S0219525908002021
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    References listed on IDEAS

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    1. Dorogovtsev, S.N. & Mendes, J.F.F., 2003. "Evolution of Networks: From Biological Nets to the Internet and WWW," OUP Catalogue, Oxford University Press, number 9780198515906.
    2. Caldarelli, Guido, 2007. "Scale-Free Networks: Complex Webs in Nature and Technology," OUP Catalogue, Oxford University Press, number 9780199211517.
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    Cited by:

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    2. Gautier Marti & Frank Nielsen & Miko{l}aj Bi'nkowski & Philippe Donnat, 2017. "A review of two decades of correlations, hierarchies, networks and clustering in financial markets," Papers 1703.00485, arXiv.org, revised Nov 2020.
    3. Tomaso Aste, 2019. "Cryptocurrency market structure: connecting emotions and economics," Digital Finance, Springer, vol. 1(1), pages 5-21, November.
    4. Li, Yan & Jiang, Xiong-Fei & Tian, Yue & Li, Sai-Ping & Zheng, Bo, 2019. "Portfolio optimization based on network topology," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 515(C), pages 671-681.
    5. Stefan, F.M. & Atman, A.P.F., 2023. "Asymmetric rate of returns and wealth distribution influenced by the introduction of technical analysis into a behavioral agent-based model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 630(C).
    6. Kazemilari, Mansooreh & Mardani, Abbas & Streimikiene, Dalia & Zavadskas, Edmundas Kazimieras, 2017. "An overview of renewable energy companies in stock exchange: Evidence from minimal spanning tree approach," Renewable Energy, Elsevier, vol. 102(PA), pages 107-117.
    7. Dariusz Siudak, 2021. "Sectoral Analysis of the US Stock Market through Complex Networks," European Research Studies Journal, European Research Studies Journal, vol. 0(3B), pages 951-966.
    8. Cho, Younghwan & Song, Jae Wook, 2023. "Hierarchical risk parity using security selection based on peripheral assets of correlation-based minimum spanning trees," Finance Research Letters, Elsevier, vol. 53(C).
    9. Imran Ansari & Charu Sharma & Akshay Agrawal & Niteesh Sahni, 2024. "A novel portfolio construction strategy based on the core-periphery profile of stocks," Papers 2405.12993, arXiv.org.
    10. Tomaso Aste, 2019. "Cryptocurrency market structure: connecting emotions and economics," Papers 1903.00472, arXiv.org.
    11. Zhang, Yiting & Lee, Gladys Hui Ting & Wong, Jian Cheng & Kok, Jun Liang & Prusty, Manamohan & Cheong, Siew Ann, 2011. "Will the US economy recover in 2010? A minimal spanning tree study," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(11), pages 2020-2050.
    12. Kazemilari, Mansooreh & Djauhari, Maman Abdurachman, 2015. "Correlation network analysis for multi-dimensional data in stocks market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 429(C), pages 62-75.

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