Singularity strength based characterization of financial networks

TL;DR

This paper introduces a novel method using singularity strength to characterize financial networks, revealing hierarchical structures and multi-fractal properties in the Johannesburg Stock Exchange that are not visible with traditional correlation-based methods.

Contribution

It proposes a singularity strength based distance metric for financial network analysis, uncovering hierarchical and multi-fractal features in the Johannesburg Stock Exchange.

Findings

Identification of a super cluster in the network

Revealed multi-fractal nature of the market

Demonstrated hierarchical structure in financial networks

Abstract

Financial markets are well known examples of multi-fractal complex systems that have garnered much interest in their characterization through complex network theory. The recent studies have used correlation based distance metrics for defining and analyzing financial networks. In this work the singularity strength is employed to define a distance metric and the existence of hierarchical structure in the Johannesburg Stock Exchange is investigated. The multi-fractal nature of the financial market, which is otherwise hidden in the correlation coefficient based prescriptions, is analyzed through the use of the singularity strength based method. The presence of a super cluster is exhibited in the network which accounts for half of the network size and is homogeneous in the sectoral composition of the South African market.