Kiel Working Papers, Kiel Institute for World Economics
No 1739:
Evolvement of uniformity and volatility in the stressed global financial village
Dror Y. Kenett, Matthias Raddant, Thomas Lux and Eshel Ben-Jacob
Abstract: In the current era of strong worldwide market couplings
the global financial village became highly prone to systemic collapses,
events that can rapidly sweep through out the entire village. Here 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 very volatile and with noticeable
maxima at times of global world events (2001: 9/11-attacks, 2003: Iraq war,
SARS, etc). The Japanese market switches ``identity'' - it switches between
periods of high meta-correlations with the ``western'' markets and periods
that it behaves more similar to the ``eastern'' markets. These and
additional reported findings illustrate that the methodological framework
provides a way to quantify the evolvement of interdependencies in the
global market, to 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 developed
into world wide events
Keywords: financial markets, comovement, financial crisis, stock correlations, networks; (follow links to similar papers)
JEL-Codes: G15,; F36; (follow links to similar papers)
27 pages, October 2011
Before downloading any of the electronic versions below
you should read our statement on
copyright.
Download GhostScript
for viewing Postscript files and the
Acrobat Reader for viewing and printing pdf files.
Downloadable files:
kwp-1739.pdf
Download Statistics
Report other problems with accessing this service to Sune Karlsson ()
or Helena Lundin ().
Programing by
Design Joakim Ekebom