Dresden 2011 – scientific programme
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SOE: Fachverband Physik sozio-ökonomischer Systeme
SOE 18: Financial Markets and Risk Management I
SOE 18.3: Talk
Thursday, March 17, 2011, 10:45–11:00, GÖR 226
Dominating clasp of the financial sector revealed by partial correlation analysis of the stock market — •Dror Kenett1, Michele Tumminello2, Asaf Madi1, Gitit Gur-Gershgoren3, Rosario Mantegna2, and Eshel Ben-Jacob1 — 1School of Physics and Astronomy, Tel-Aviv University, Israel — 2Dipartimento di Fisica e Tecnologie Relative, Universit`a di Palermo, Palermo, Italy — 3Israel Securities Authority, Jerusalem, Israel
What are the dominant stocks which drive the correlations present among stocks traded in a stock market? Can a correlation analysis provide an answer to this question? We introduce a new concept to tackle the above question - the partial correlation network. Partial correlation is a measure of how the correlation between two variables, e.g. stock returns, is affected by a third variable. By using it we define a proxy of stock influence, which is then used to construct partial correlation networks. The empirical part of this study is performed on a specific financial system, namely the set of 300 highly capitalized stocks traded at the New York Stock Exchange, in the time period 2001-2003. By constructing the partial correlation network, unlike the case of standard correlation based networks, we find that stocks belonging to the financial sector and, in particular, to the investment services sub-sector, are the most influential stocks affecting the correlation profile of the system. Our findings shed a new light on the underlying mechanisms and driving forces controlling the correlation profile observed in a financial market.