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Index Cohesive Force Analysis Reveals That the US Market Became Prone to Systemic Collapses Since 2002

BACKGROUND: The 2007–2009 financial crisis, and its fallout, has strongly emphasized the need to define new ways and measures to study and assess the stock market dynamics. METHODOLOGY/PRINCIPAL FINDINGS: The S&P500 dynamics during 4/1999–4/2010 is investigated in terms of the index cohesive for...

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Autores principales: Kenett, Dror Y., Shapira, Yoash, Madi, Asaf, Bransburg-Zabary, Sharron, Gur-Gershgoren, Gitit, Ben-Jacob, Eshel
Formato: Texto
Lenguaje:English
Publicado: Public Library of Science 2011
Materias:
Acceso en línea:https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3083438/
https://www.ncbi.nlm.nih.gov/pubmed/21556323
http://dx.doi.org/10.1371/journal.pone.0019378
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author Kenett, Dror Y.
Shapira, Yoash
Madi, Asaf
Bransburg-Zabary, Sharron
Gur-Gershgoren, Gitit
Ben-Jacob, Eshel
author_facet Kenett, Dror Y.
Shapira, Yoash
Madi, Asaf
Bransburg-Zabary, Sharron
Gur-Gershgoren, Gitit
Ben-Jacob, Eshel
author_sort Kenett, Dror Y.
collection PubMed
description BACKGROUND: The 2007–2009 financial crisis, and its fallout, has strongly emphasized the need to define new ways and measures to study and assess the stock market dynamics. METHODOLOGY/PRINCIPAL FINDINGS: The S&P500 dynamics during 4/1999–4/2010 is investigated in terms of the index cohesive force (ICF - the balance between the stock correlations and the partial correlations after subtraction of the index contribution), and the Eigenvalue entropy of the stock correlation matrices. We found a rapid market transition at the end of 2001 from a flexible state of low ICF into a stiff (nonflexible) state of high ICF that is prone to market systemic collapses. The stiff state is also marked by strong effect of the market index on the stock-stock correlations as well as bursts of high stock correlations reminiscence of epileptic brain activity. CONCLUSIONS/SIGNIFICANCE: The market dynamical states, stability and transition between economic states was studies using new quantitative measures. Doing so shed new light on the origin and nature of the current crisis. The new approach is likely to be applicable to other classes of complex systems from gene networks to the human brain.
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spelling pubmed-30834382011-05-09 Index Cohesive Force Analysis Reveals That the US Market Became Prone to Systemic Collapses Since 2002 Kenett, Dror Y. Shapira, Yoash Madi, Asaf Bransburg-Zabary, Sharron Gur-Gershgoren, Gitit Ben-Jacob, Eshel PLoS One Research Article BACKGROUND: The 2007–2009 financial crisis, and its fallout, has strongly emphasized the need to define new ways and measures to study and assess the stock market dynamics. METHODOLOGY/PRINCIPAL FINDINGS: The S&P500 dynamics during 4/1999–4/2010 is investigated in terms of the index cohesive force (ICF - the balance between the stock correlations and the partial correlations after subtraction of the index contribution), and the Eigenvalue entropy of the stock correlation matrices. We found a rapid market transition at the end of 2001 from a flexible state of low ICF into a stiff (nonflexible) state of high ICF that is prone to market systemic collapses. The stiff state is also marked by strong effect of the market index on the stock-stock correlations as well as bursts of high stock correlations reminiscence of epileptic brain activity. CONCLUSIONS/SIGNIFICANCE: The market dynamical states, stability and transition between economic states was studies using new quantitative measures. Doing so shed new light on the origin and nature of the current crisis. The new approach is likely to be applicable to other classes of complex systems from gene networks to the human brain. Public Library of Science 2011-04-27 /pmc/articles/PMC3083438/ /pubmed/21556323 http://dx.doi.org/10.1371/journal.pone.0019378 Text en Kenett et al. http://creativecommons.org/licenses/by/4.0/ This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are properly credited.
spellingShingle Research Article
Kenett, Dror Y.
Shapira, Yoash
Madi, Asaf
Bransburg-Zabary, Sharron
Gur-Gershgoren, Gitit
Ben-Jacob, Eshel
Index Cohesive Force Analysis Reveals That the US Market Became Prone to Systemic Collapses Since 2002
title Index Cohesive Force Analysis Reveals That the US Market Became Prone to Systemic Collapses Since 2002
title_full Index Cohesive Force Analysis Reveals That the US Market Became Prone to Systemic Collapses Since 2002
title_fullStr Index Cohesive Force Analysis Reveals That the US Market Became Prone to Systemic Collapses Since 2002
title_full_unstemmed Index Cohesive Force Analysis Reveals That the US Market Became Prone to Systemic Collapses Since 2002
title_short Index Cohesive Force Analysis Reveals That the US Market Became Prone to Systemic Collapses Since 2002
title_sort index cohesive force analysis reveals that the us market became prone to systemic collapses since 2002
topic Research Article
url https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3083438/
https://www.ncbi.nlm.nih.gov/pubmed/21556323
http://dx.doi.org/10.1371/journal.pone.0019378
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