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Spread of risk across financial markets: better to invest in the peripheries
Risk is not uniformly spread across financial markets and this fact can be exploited to reduce investment risk contributing to improve global financial stability. We discuss how, by extracting the dependency structure of financial equities, a network approach can be used to build a well-diversified...
Autores principales: | , , |
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Formato: | Online Artículo Texto |
Lenguaje: | English |
Publicado: |
Nature Publishing Group
2013
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Materias: | |
Acceso en línea: | https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3627193/ https://www.ncbi.nlm.nih.gov/pubmed/23588852 http://dx.doi.org/10.1038/srep01665 |
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author | Pozzi, F. Di Matteo, T. Aste, T. |
author_facet | Pozzi, F. Di Matteo, T. Aste, T. |
author_sort | Pozzi, F. |
collection | PubMed |
description | Risk is not uniformly spread across financial markets and this fact can be exploited to reduce investment risk contributing to improve global financial stability. We discuss how, by extracting the dependency structure of financial equities, a network approach can be used to build a well-diversified portfolio that effectively reduces investment risk. We find that investments in stocks that occupy peripheral, poorly connected regions in financial filtered networks, namely Minimum Spanning Trees and Planar Maximally Filtered Graphs, are most successful in diversifying, improving the ratio between returns' average and standard deviation, reducing the likelihood of negative returns, while keeping profits in line with the general market average even for small baskets of stocks. On the contrary, investments in subsets of central, highly connected stocks are characterized by greater risk and worse performance. This methodology has the added advantage of visualizing portfolio choices directly over the graphic layout of the network. |
format | Online Article Text |
id | pubmed-3627193 |
institution | National Center for Biotechnology Information |
language | English |
publishDate | 2013 |
publisher | Nature Publishing Group |
record_format | MEDLINE/PubMed |
spelling | pubmed-36271932013-04-16 Spread of risk across financial markets: better to invest in the peripheries Pozzi, F. Di Matteo, T. Aste, T. Sci Rep Article Risk is not uniformly spread across financial markets and this fact can be exploited to reduce investment risk contributing to improve global financial stability. We discuss how, by extracting the dependency structure of financial equities, a network approach can be used to build a well-diversified portfolio that effectively reduces investment risk. We find that investments in stocks that occupy peripheral, poorly connected regions in financial filtered networks, namely Minimum Spanning Trees and Planar Maximally Filtered Graphs, are most successful in diversifying, improving the ratio between returns' average and standard deviation, reducing the likelihood of negative returns, while keeping profits in line with the general market average even for small baskets of stocks. On the contrary, investments in subsets of central, highly connected stocks are characterized by greater risk and worse performance. This methodology has the added advantage of visualizing portfolio choices directly over the graphic layout of the network. Nature Publishing Group 2013-04-16 /pmc/articles/PMC3627193/ /pubmed/23588852 http://dx.doi.org/10.1038/srep01665 Text en Copyright © 2013, Macmillan Publishers Limited. All rights reserved http://creativecommons.org/licenses/by-nc-nd/3.0/ This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by-nc-nd/3.0/ |
spellingShingle | Article Pozzi, F. Di Matteo, T. Aste, T. Spread of risk across financial markets: better to invest in the peripheries |
title | Spread of risk across financial markets: better to invest in the peripheries |
title_full | Spread of risk across financial markets: better to invest in the peripheries |
title_fullStr | Spread of risk across financial markets: better to invest in the peripheries |
title_full_unstemmed | Spread of risk across financial markets: better to invest in the peripheries |
title_short | Spread of risk across financial markets: better to invest in the peripheries |
title_sort | spread of risk across financial markets: better to invest in the peripheries |
topic | Article |
url | https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3627193/ https://www.ncbi.nlm.nih.gov/pubmed/23588852 http://dx.doi.org/10.1038/srep01665 |
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