Deterministic Factors of Stock Networks based on Cross-correlation in Financial Market - Quantitative Finance > Statistical FinanceReport as inadecuate




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Abstract: The stock market has been known to form homogeneous stock groups with ahigher correlation among different stocks according to common economic factorsthat influence individual stocks. We investigate the role of common economicfactors in the market in the formation of stock networks, using the arbitragepricing model reflecting essential properties of common economic factors. Wefind that the degree of consistency between real and model stock networksincreases as additional common economic factors are incorporated into ourmodel. Furthermore, we find that individual stocks with a large number of linksto other stocks in a network are more highly correlated with common economicfactors than those with a small number of links. This suggests that commoneconomic factors in the stock market can be understood in terms ofdeterministic factors.



Author: Cheoljun Eom, Gabjin Oh, Seunghwan Kim

Source: https://arxiv.org/







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