Optimal decision for the market graph identification problem in a sign similarity network

Optimal decision for the market graph identification problem in a sign similarity network Research into the market graph is attracting increasing attention in stock market analysis. One of the important problems connected with the market graph is its identification from observations. The standard way of identifying the market graph is to use a simple procedure based on statistical estimations of Pearson correlations between pairs of stocks. Recently a new class of statistical procedures for market graph identification was introduced and the optimality of these procedures in the Pearson correlation Gaussian network was proved. However, the procedures obtained have a high reliability only for Gaussian multivariate distributions of stock attributes. One of the ways to correct this problem is to consider different networks generated by different measures of pairwise similarity of stocks. A new and promising model in this context is the sign similarity network. In this paper the market graph identification problem in the sign similarity network is reviewed. A new class of statistical procedures for the market graph identification is introduced and the optimality of these procedures is proved. Numerical experiments reveal an essential difference in the quality between optimal procedures in sign similarity and Pearson correlation networks. In particular, it is observed that the quality of the optimal identification procedure in the sign similarity network is not sensitive to the assumptions on the distribution of stock attributes. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Annals of Operations Research Springer Journals

Optimal decision for the market graph identification problem in a sign similarity network

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Publisher
Springer Journals
Copyright
Copyright © 2017 by Springer Science+Business Media New York
Subject
Business and Management; Operations Research/Decision Theory; Combinatorics; Theory of Computation
ISSN
0254-5330
eISSN
1572-9338
D.O.I.
10.1007/s10479-017-2491-6
Publisher site
See Article on Publisher Site

Abstract

Research into the market graph is attracting increasing attention in stock market analysis. One of the important problems connected with the market graph is its identification from observations. The standard way of identifying the market graph is to use a simple procedure based on statistical estimations of Pearson correlations between pairs of stocks. Recently a new class of statistical procedures for market graph identification was introduced and the optimality of these procedures in the Pearson correlation Gaussian network was proved. However, the procedures obtained have a high reliability only for Gaussian multivariate distributions of stock attributes. One of the ways to correct this problem is to consider different networks generated by different measures of pairwise similarity of stocks. A new and promising model in this context is the sign similarity network. In this paper the market graph identification problem in the sign similarity network is reviewed. A new class of statistical procedures for the market graph identification is introduced and the optimality of these procedures is proved. Numerical experiments reveal an essential difference in the quality between optimal procedures in sign similarity and Pearson correlation networks. In particular, it is observed that the quality of the optimal identification procedure in the sign similarity network is not sensitive to the assumptions on the distribution of stock attributes.

Journal

Annals of Operations Research – Springer Journals

Published: Apr 3, 2017

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