Financial fluctuations anchored to economic fundamentals: A mesoscopic network approach

Abstract We demonstrate the existence of an empirical linkage between nominal financial networks and the underlying economic fundamentals, across countries. We construct the nominal return correlation networks from daily data to encapsulate sector-level dynamics and infer the relative importance of...

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Autores principales:	Kiran Sharma, Balagopal Gopalakrishnan, Anindya S. Chakrabarti, Anirban Chakraborti
Formato:	article
Lenguaje:	EN
Publicado:	Nature Portfolio 2017
Materias:	Medicine R Science Q
Acceso en línea:	https://doaj.org/article/e6434143758346e0bf78c71718b91483
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spelling	oai:doaj.org-article:e6434143758346e0bf78c71718b914832021-12-02T11:40:20ZFinancial fluctuations anchored to economic fundamentals: A mesoscopic network approach10.1038/s41598-017-07758-92045-2322https://doaj.org/article/e6434143758346e0bf78c71718b914832017-08-01T00:00:00Zhttps://doi.org/10.1038/s41598-017-07758-9https://doaj.org/toc/2045-2322Abstract We demonstrate the existence of an empirical linkage between nominal financial networks and the underlying economic fundamentals, across countries. We construct the nominal return correlation networks from daily data to encapsulate sector-level dynamics and infer the relative importance of the sectors in the nominal network through measures of centrality and clustering algorithms. Eigenvector centrality robustly identifies the backbone of the minimum spanning tree defined on the return networks as well as the primary cluster in the multidimensional scaling map. We show that the sectors that are relatively large in size, defined with three metrics, viz., market capitalization, revenue and number of employees, constitute the core of the return networks, whereas the periphery is mostly populated by relatively smaller sectors. Therefore, sector-level nominal return dynamics are anchored to the real size effect, which ultimately shapes the optimal portfolios for risk management. Our results are reasonably robust across 27 countries of varying degrees of prosperity and across periods of market turbulence (2008–09) as well as periods of relative calmness (2012–13 and 2015–16).Kiran SharmaBalagopal GopalakrishnanAnindya S. ChakrabartiAnirban ChakrabortiNature PortfolioarticleMedicineRScienceQENScientific Reports, Vol 7, Iss 1, Pp 1-11 (2017)
institution	DOAJ
collection	DOAJ
language	EN
topic	Medicine R Science Q
spellingShingle	Medicine R Science Q Kiran Sharma Balagopal Gopalakrishnan Anindya S. Chakrabarti Anirban Chakraborti Financial fluctuations anchored to economic fundamentals: A mesoscopic network approach
description	Abstract We demonstrate the existence of an empirical linkage between nominal financial networks and the underlying economic fundamentals, across countries. We construct the nominal return correlation networks from daily data to encapsulate sector-level dynamics and infer the relative importance of the sectors in the nominal network through measures of centrality and clustering algorithms. Eigenvector centrality robustly identifies the backbone of the minimum spanning tree defined on the return networks as well as the primary cluster in the multidimensional scaling map. We show that the sectors that are relatively large in size, defined with three metrics, viz., market capitalization, revenue and number of employees, constitute the core of the return networks, whereas the periphery is mostly populated by relatively smaller sectors. Therefore, sector-level nominal return dynamics are anchored to the real size effect, which ultimately shapes the optimal portfolios for risk management. Our results are reasonably robust across 27 countries of varying degrees of prosperity and across periods of market turbulence (2008–09) as well as periods of relative calmness (2012–13 and 2015–16).
format	article
author	Kiran Sharma Balagopal Gopalakrishnan Anindya S. Chakrabarti Anirban Chakraborti
author_facet	Kiran Sharma Balagopal Gopalakrishnan Anindya S. Chakrabarti Anirban Chakraborti
author_sort	Kiran Sharma
title	Financial fluctuations anchored to economic fundamentals: A mesoscopic network approach
title_short	Financial fluctuations anchored to economic fundamentals: A mesoscopic network approach
title_full	Financial fluctuations anchored to economic fundamentals: A mesoscopic network approach
title_fullStr	Financial fluctuations anchored to economic fundamentals: A mesoscopic network approach
title_full_unstemmed	Financial fluctuations anchored to economic fundamentals: A mesoscopic network approach
title_sort	financial fluctuations anchored to economic fundamentals: a mesoscopic network approach
publisher	Nature Portfolio
publishDate	2017
url	https://doaj.org/article/e6434143758346e0bf78c71718b91483
work_keys_str_mv	AT kiransharma financialfluctuationsanchoredtoeconomicfundamentalsamesoscopicnetworkapproach AT balagopalgopalakrishnan financialfluctuationsanchoredtoeconomicfundamentalsamesoscopicnetworkapproach AT anindyaschakrabarti financialfluctuationsanchoredtoeconomicfundamentalsamesoscopicnetworkapproach AT anirbanchakraborti financialfluctuationsanchoredtoeconomicfundamentalsamesoscopicnetworkapproach
_version_	1718395677165223936

Financial fluctuations anchored to economic fundamentals: A mesoscopic network approach

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