Next Boston QWAFAFEW Meeting: Tuesday, 19 Mar 2013

This talk will present a new framework for quantification of the coupling and interdependences between different financial markets. The employment of ideas and techniques from complexity science and the proposed theory of coupled and interdependent networks to understand and quantify the role of connections and dependencies within a system and between different ones opens the possibility to manage the complexity, optimize the systems and reduce their vulnerability to failures. More specifically, we investigate the stock-stock correlations in individual markets as local market dynamics, and the correlation of correlations, meta-correlations, which represents global market dynamics. Furthermore, we make use of the recently introduced dependency network methodology, which enables a quantification of the influence relationships between the different markets. The methodology presented provides the means to track the flow of information between different markets, and can be used to identify changes in correlations in strongly coupled markets.

The world has become a global village, and this village is becoming smaller and smaller, with the continuous introduction of ways to interact and connect to other people. Thus, the methodology outlined in this talk will provide new tools and means to quantify, characterize and manage the complexity of the world’s economy. The methodologies presented here can be used as the basis for quantitative early warning tools, a “financial seismograph”, which will provide policy makers the necessary precursors for significant local and global economic events. 

References

[1]                Y. Shapira, D.Y. Kenett, and E. Ben-Jacob (2009), “The Index Cohesive Effect on Stock Market Correlations,” European Journal of Physics B 72(4), 657–669

[2]                D. Y. Kenett, M. Tumminello, A. Madi, G. Gur-Gershgoren, R. N. Mantegna, and E. Ben-Jacob (2010), “Dominating Clasp of the Financial Sector Revealed by Partial Correlation Analysis of the Stock Market, PLoS ONE 5(12), e15032.

[3]                D. Y. Kenett, M. Raddant, T. Lux, and E. Ben-Jacob (2012), “Evolvement of Uniformity and Volatility in the Stressed Global Financial Village,” PLoS ONE 7(2), e31144.

[4]                D.Y. Kenett, M. Raddant, L. Zatlavi, T. Lux, and E. Ben-Jacob (2012), “Correlations and Dependencies in the Global Financial Village,” International Journal of Modern Physics: Conference Series 16(1), 13–28..

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