Stock network stability in times of crisis

Faculty/Professorship: Sociological Theory  
Author(s): Heiberger, Raphael H.
Title of the Journal: Physica / A : Statistical mechanics and its applications ; europhysics journal
ISSN: 1873-2119
Publisher Information: Amsterdam : North Holland Publ. Co.
Year of publication: 2014
Volume: 393
Pages: 376-381
Language(s): English
DOI: 10.1016/j.physa.2013.08.053
Despite many efforts crises on financial markets are in large part still scientific black-boxes. In this paper, we use a winner-take-all approach to construct a longitudinal network of S&P 500 companies and their correlations between 2000 and 2012. A comparison to complex ecosystems is drawn, especially whether the May–Wigner theorem can describe real-world economic phenomena. The results confirm the utility of the May–Wigner theorem as a stability indicator for the US stock market, since its development matches with the two major crises of this period, the dot-com bubble and, particularly, the financial crisis. In those times of financial turmoil, the stock network changes its composition, but unlike ecological systems it tightens and the disassortative structure of prosperous markets transforms into a more centralized topology.
Keywords: Econophysics; Financial crisis; Stock networks; May–Wigner; Ecology
Type: Article
Year of publication: 7. January 2015