Reconstructing an Economic Space from a Market Metric
JOURNAL
YEAR
Sep 21, 2003
TYPE
Articles in journals
AUTHORS
Araújo, T., Vilela Mendes, R., Louçã, F.
VOL Nº
323
PAGES
15
ABSTRACT
Using a metric related to the returns correlation, a method is proposed to reconstruct na economic space from the market data. A reduced subspace, associated to the systematic structure ofthe market, is identi0ed and its dimension related to the number ofterms in factor models. Examples were worked out involving sets of companies from the DJIA and S&P500 indexes. Having a metric de0ned in the space ofcompanies, network topology coe8cients may be used to extract further information from the data. A notion of “continuous clustering” is de0ned and empirically related to the occurrence ofmarket shocks.
JEL CLASS
KEYWORDS
Factors,Market metric,Stochastic geometry,Market spaces