Limits...
Evolvement of uniformity and volatility in the stressed global financial village.

Kenett DY, Raddant M, Lux T, Ben-Jacob E - PLoS ONE (2012)

Bottom Line: The Japanese market switches "identity"--it switches between periods of high meta-correlations with the "western" markets and periods when it behaves more similarly to the "eastern" markets.Such changes can be used as precursors to the agitation of the global financial village.Hence, the new approach can help to develop a sensitive "financial seismograph" to detect early signs of global financial crises so they can be treated before they develop into worldwide events.

View Article: PubMed Central - PubMed

Affiliation: School of Physics and Astronomy, Tel-Aviv University, Tel-Aviv, Israel.

ABSTRACT

Background: In the current era of strong worldwide market couplings the global financial village became highly prone to systemic collapses, events that can rapidly sweep throughout the entire village.

Methodology/principal findings: We present a new methodology to assess and quantify inter-market relations. The approach is based on the correlations between the market index, the index volatility, the market Index Cohesive Force and the meta-correlations (correlations between the intra-correlations.) We investigated the relations between six important world markets--U.S., U.K., Germany, Japan, China and India--from January 2000 until December 2010. We found that while the developed "western" markets (U.S., U.K., Germany) are highly correlated, the interdependencies between these markets and the developing "eastern" markets (India and China) are volatile and with noticeable maxima at times of global world events. The Japanese market switches "identity"--it switches between periods of high meta-correlations with the "western" markets and periods when it behaves more similarly to the "eastern" markets.

Conclusions/significance: The methodological framework presented here provides a way to quantify the evolvement of interdependencies in the global market, evaluate a world financial network and quantify changes in the world inter market relations. Such changes can be used as precursors to the agitation of the global financial village. Hence, the new approach can help to develop a sensitive "financial seismograph" to detect early signs of global financial crises so they can be treated before they develop into worldwide events.

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Related in: MedlinePlus

Dynamics of the ICF.The dynamics of the ICF for each market is plotted, for the period of 2000–2010.
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pone-0031144-g004: Dynamics of the ICF.The dynamics of the ICF for each market is plotted, for the period of 2000–2010.

Mentions: Next, we calculate for each of the markets the Index Cohesive Force (ICF, Figure 4). High values of the ICF correspond to a state in which the market index dominates the behavior of the market, thus making it stiff and more prone to systematic failures. By studying Figure 4, it is possible to observe that some markets are similar in their dynamics of the ICF. Some similarities can be observed for the U.S., U.K., Germany, and Japan, whereas China shows a significantly different behavior. The ICF of the U.S. and Japan displays similarity in trend and magnitude, whereas U.K., India and Germany have a similar trend but much lower magnitude. Finally, China shows very different behavior than all other markets.


Evolvement of uniformity and volatility in the stressed global financial village.

Kenett DY, Raddant M, Lux T, Ben-Jacob E - PLoS ONE (2012)

Dynamics of the ICF.The dynamics of the ICF for each market is plotted, for the period of 2000–2010.
© Copyright Policy
Related In: Results  -  Collection

Show All Figures
getmorefigures.php?uid=PMC3275621&req=5

pone-0031144-g004: Dynamics of the ICF.The dynamics of the ICF for each market is plotted, for the period of 2000–2010.
Mentions: Next, we calculate for each of the markets the Index Cohesive Force (ICF, Figure 4). High values of the ICF correspond to a state in which the market index dominates the behavior of the market, thus making it stiff and more prone to systematic failures. By studying Figure 4, it is possible to observe that some markets are similar in their dynamics of the ICF. Some similarities can be observed for the U.S., U.K., Germany, and Japan, whereas China shows a significantly different behavior. The ICF of the U.S. and Japan displays similarity in trend and magnitude, whereas U.K., India and Germany have a similar trend but much lower magnitude. Finally, China shows very different behavior than all other markets.

Bottom Line: The Japanese market switches "identity"--it switches between periods of high meta-correlations with the "western" markets and periods when it behaves more similarly to the "eastern" markets.Such changes can be used as precursors to the agitation of the global financial village.Hence, the new approach can help to develop a sensitive "financial seismograph" to detect early signs of global financial crises so they can be treated before they develop into worldwide events.

View Article: PubMed Central - PubMed

Affiliation: School of Physics and Astronomy, Tel-Aviv University, Tel-Aviv, Israel.

ABSTRACT

Background: In the current era of strong worldwide market couplings the global financial village became highly prone to systemic collapses, events that can rapidly sweep throughout the entire village.

Methodology/principal findings: We present a new methodology to assess and quantify inter-market relations. The approach is based on the correlations between the market index, the index volatility, the market Index Cohesive Force and the meta-correlations (correlations between the intra-correlations.) We investigated the relations between six important world markets--U.S., U.K., Germany, Japan, China and India--from January 2000 until December 2010. We found that while the developed "western" markets (U.S., U.K., Germany) are highly correlated, the interdependencies between these markets and the developing "eastern" markets (India and China) are volatile and with noticeable maxima at times of global world events. The Japanese market switches "identity"--it switches between periods of high meta-correlations with the "western" markets and periods when it behaves more similarly to the "eastern" markets.

Conclusions/significance: The methodological framework presented here provides a way to quantify the evolvement of interdependencies in the global market, evaluate a world financial network and quantify changes in the world inter market relations. Such changes can be used as precursors to the agitation of the global financial village. Hence, the new approach can help to develop a sensitive "financial seismograph" to detect early signs of global financial crises so they can be treated before they develop into worldwide events.

Show MeSH
Related in: MedlinePlus