Financial influences and scale-free networks

Authors:
Nitin Arora;Babu Narayanan;Samit Paul
Affiliations:
Google Inc., Bangalore, India;GE Global Research, John F. Welch Technology Centre, Bangalore, India;GE Global Research, John F. Welch Technology Centre, Bangalore, India
Venue:
ICCS'06 Proceedings of the 6th international conference on Computational Science - Volume Part I
Year:
2006

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Abstract

We consider the problem of analyzing influences in financial networks by studying correlations in stock price movements of companies in the S&P 500 index and measures of influence that can be attributed to each company. We demonstrate that under a novel and natural measure of influence involving cross-correlations of stock market returns and market capitalization, the resulting network of financial influences is Scale Free. This is further corroborated by the existence of an intuitive set of highly influential hub nodes in the network. Finally, it is also shown that companies that have been deleted from the S&P 500 index had low values of influence.