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The Spread of the Credit Crisis: View from a Stock Correlation Network

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  • Reginald D. Smith

Abstract

The credit crisis roiling the world's financial markets will likely take years and entire careers to fully understand and analyze. A short empirical investigation of the current trends, however, demonstrates that the losses in certain markets, in this case the US equity markets, follow a cascade or epidemic flow like model along the correlations of various stocks. This phenomenon will be shown by the graphical display of stock returns across the network as well as the dependence of stock returns on topological measures. Finally, whether the idea of "epidemic" or a "cascade" is a metaphor or model for this crisis will be discussed.

Suggested Citation

  • Reginald D. Smith, 2009. "The Spread of the Credit Crisis: View from a Stock Correlation Network," Papers 0901.1392, arXiv.org, revised Jun 2009.
    • Handle: RePEc:arx:papers:0901.1392
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    Cited by:

    1. Sandoval, Leonidas, 2012. "Pruning a minimum spanning tree," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(8), pages 2678-2711.
    2. Dion Harmon & Marco Lagi & Marcus A M de Aguiar & David D Chinellato & Dan Braha & Irving R Epstein & Yaneer Bar-Yam, 2015. "Anticipating Economic Market Crises Using Measures of Collective Panic," PLOS ONE, Public Library of Science, vol. 10(7), pages 1-27, July.
    3. Leonidas Sandoval Junior, 2011. "Pruning a Minimum Spanning Tree," Papers 1109.0642, arXiv.org.
    4. 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.
    5. Aarush Pratik Sheth & Jonah Riley Weinbaum & Kevin Javier Zvonarek, 2023. "A Decadal Analysis of the Lead-Lag Effect in the NYSE," Papers 2312.10084, arXiv.org.
    6. Irena Vodenska & Alexander P. Becker & Di Zhou & Dror Y. Kenett & H. Eugene Stanley & Shlomo Havlin, 2016. "Community Analysis of Global Financial Markets," Risks, MDPI, vol. 4(2), pages 1-15, May.

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