A behavioral approach to instability pathways in financial markets

Nicolo' Pecora, Alessandro Spelta, Andrea Flori, Sergey Buldyrev, Fabio Pammolli

Risultato della ricerca: Contributo in rivistaArticolo in rivistapeer review

4 Citazioni (Scopus)

Abstract

We introduce an indicator that aims to detect the emergence of market instabilities by quantifying the intensity of self-organizing processes arising from stock returns’ co-movements. In financial markets, phenomena like imitation, herding and positive feedbacks characterize the emergence of endogenous instabilities, which can modify the qualitative and quantitative behavior of the underlying system. The impossibility to formalize ex-ante the dynamic laws that rule the evolution of financial systems motivates the use of a parsimonious synthetic indicator to detect the disruption of an existing equilibrium configuration. Here we show that the emergence of an interconnected sub-graph of stock returns co-movements from a broader market index is a signal of an out-of-equilibrium transition of the underlying system. To test the validity of our approach, we propose a model-free application that builds on the identification of up and down market phases.
Lingua originaleEnglish
pagine (da-a)N/A-N/A
RivistaNature Communications
DOI
Stato di pubblicazionePubblicato - 2020

Keywords

  • Complex systems
  • Financial Instability
  • Investment strategies
  • Leading Temporal Module

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