Journal
PHYSICA A-STATISTICAL MECHANICS AND ITS APPLICATIONS
Volume 323, Issue -, Pages 635-650Publisher
ELSEVIER
DOI: 10.1016/S0378-4371(03)00014-1
Keywords
market metric; economic space; factors
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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. (C) 2003 Elsevier Science B.V. All rights reserved.
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