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Dominating clasp of the financial sector revealed by partial correlation analysis of the stock market

PloS one, 2010-12, Vol.5 (12), p.e15032-e15032 [Peer Reviewed Journal]

COPYRIGHT 2010 Public Library of Science ;COPYRIGHT 2010 Public Library of Science ;2010 Kenett et al. This is an open-access article distributed under the terms of the Creative Commons Attribution License: https://creativecommons.org/licenses/by/4.0/ (the “License”), which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited. Notwithstanding the ProQuest Terms and Conditions, you may use this content in accordance with the terms of the License. ;Kenett et al. 2010 ;ISSN: 1932-6203 ;EISSN: 1932-6203 ;DOI: 10.1371/journal.pone.0015032 ;PMID: 21188140

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  • Title:
    Dominating clasp of the financial sector revealed by partial correlation analysis of the stock market
  • Author: Kenett, Dror Y ; Tumminello, Michele ; Madi, Asaf ; Gur-Gershgoren, Gitit ; Mantegna, Rosario N ; Ben-Jacob, Eshel
  • Scalas, Enrico
  • Subjects: Algorithms ; Biology ; Construction standards ; Correlation ; Correlation analysis ; Empirical analysis ; Financial markets ; Forecasting ; Humans ; Investments - economics ; Marketing - economics ; Markets ; Mathematics ; Methods ; Models, Economic ; Models, Statistical ; Models, Theoretical ; Networks ; New York ; Physics ; Return on investment ; Social and Behavioral Sciences ; Stock exchanges ; Stock-exchange ; Stocks ; Studies ; Time series
  • Is Part Of: PloS one, 2010-12, Vol.5 (12), p.e15032-e15032
  • Description: 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? In the past, correlation based networks have been proposed as a tool to uncover the underlying backbone of the market. Correlation based networks represent the stocks and their relationships, which are then investigated using different network theory methodologies. Here 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. Using a moving window analysis, we find that the strong influence of the financial stocks is conserved across time for the investigated trading period. Our findings shed a new light on the underlying mechanisms and driving forces controlling the correlation profile observed in a financial market.
  • Publisher: United States: Public Library of Science
  • Language: English
  • Identifier: ISSN: 1932-6203
    EISSN: 1932-6203
    DOI: 10.1371/journal.pone.0015032
    PMID: 21188140
  • Source: Public Library of Science (PLoS) Journals Open Access
    Geneva Foundation Free Medical Journals at publisher websites
    AUTh Library subscriptions: ProQuest Central
    MEDLINE
    PubMed Central
    DOAJ Directory of Open Access Journals
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