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Hierarchical structure in financial markets
R. N. Mantegnaa
Istituto Nazionale per la Fisica della Materia, Unità di Palermo,
Dipartimento di Energetica ed Applicazioni di Fisica,
Università di Palermo, Viale delle Scienze, 90128,
Corresponding author: a email@example.com
Revised: 28 June 1999
Published online: 15 September 1999
I find a hierarchical arrangement of stocks traded in a financial market by investigating the daily time series of the logarithm of stock price. The topological space is a subdominant ultrametric space associated with a graph connecting the stocks of the portfolio analyzed. The graph is obtained starting from the matrix of correlation coefficient computed between all pairs of stocks of the portfolio by considering the synchronous time evolution of the difference of the logarithm of daily stock price. The hierarchical tree of the subdominant ultrametric space associated with the graph provides a meaningful economic taxonomy.
PACS: 02.50.Sk – Multivariate analysis / 89.90.+n – Other areas of general interest to physicists
© EDP Sciences, Società Italiana di Fisica, Springer-Verlag, 1999