An exploration of the mathematical structure and behavioural biases of 21st century financial crises
arXiv:2307.15402 · doi:10.1016/j.physa.2023.129256
Abstract
In this paper we contrast the dynamics of the 2022 Ukraine invasion financial crisis with notable financial crises of the 21st century - the dot-com bubble, global financial crisis and COVID-19. We study the similarity in market dynamics and associated implications for equity investors between various financial market crises and we introduce new mathematical techniques to do so. First, we study the strength of collective dynamics during different market crises, and compare suitable portfolio diversification strategies with respect to the unique number of sectors and stocks for optimal systematic risk reduction. Next, we introduce a new linear operator method to quantify distributional distance between equity returns during various crises. Our method allows us to fairly compare underlying stock and sector performance during different time periods, normalising for those collective dynamics driven by the overall market. Finally, we introduce a new combinatorial portfolio optimisation framework driven by random sampling to investigate whether particular equities and equity sectors are more effective in maximising investor risk-adjusted returns during market crises.
arXiv commentAccepted manuscript. Minor edits since v1. Equal contribution
References in corpus (43)
- Noise Dressing of Financial Correlation Matrices
- A Random Matrix Approach to Cross-Correlations in Financial Data
- Social physics
- Clustering and information in correlation based financial networks
- Multiscale characteristics of the emerging global cryptocurrency market
- Collective behavior of stock price movements in an emerging market
- History of art paintings through the lens of entropy and complexity
- Systematic analysis of group identification in stock markets
- Strong correlations between power-law growth of COVID-19 in four continents and the inefficiency of soft quarantine strategies
- Temporal Evolution of Financial Market Correlations
- Bitcoin market route to maturity? Evidence from return fluctuations, temporal correlations and multiscaling effects
- Clustering patterns in efficiency and the coming-of-age of the cryptocurrency market
- Power-law distribution in the number of confirmed COVID-19 cases
- COVID-19 second wave mortality in Europe and the United States
- Towards identifying the world stock market cross-correlations: DAX versus Dow Jones
- An analysis of Cross-correlations in South African Market data
- Safe Leads and Lead Changes in Competitive Team Sports
- Market dynamics immediately before and after financial shocks: quantifying the Omori, productivity and Bath laws
- Signatures of crypto-currency market decoupling from the Forex
- Understanding recurrent crime as system-immanent collective behavior
- Cryptocurrencies Are Becoming Part of the World Global Financial Market
- Log-periodic self-similarity: an emerging financial law?
- Competition of noise and collectivity in global cryptocurrency trading: route to a self-contained market
- Uncovering the Dynamics of Correlation Structures Relative to the Collective Market Motion
- Detecting correlations and triangular arbitrage opportunities in the Forex by means of multifractal detrended cross-correlations analysis
- Multifractal cross-correlations of bitcoin and ether trading characteristics in the post-COVID-19 time
- Comparing the dynamics of COVID-19 infection and mortality in the United States, India, and Brazil
- Economic state classification and portfolio optimisation with application to stagflationary environments
- What is mature and what is still emerging in the cryptocurrency market?
- Global and regional changes in carbon dioxide emissions: 1970-2019
- Spatio-temporal trends in the propagation and capacity of low-carbon hydrogen projects
- A new measure between sets of probability distributions with applications to erratic financial behavior
- Collective dynamics, diversification and optimal portfolio construction for cryptocurrencies
- Understanding spatial propagation using metric geometry with application to the spread of COVID-19 in the United States
- On the non-stationarity of financial time series: impact on optimal portfolio selection
- Estimating a continuously varying offset between multivariate time series with application to COVID-19 in the United States
- In search of peak human athletic potential: A mathematical investigation
- Semi-metric portfolio optimization: a new algorithm reducing simultaneous asset shocks
- Distributional trends in the generation and end-use sector of low-carbon hydrogen plants
- Geometric persistence and distributional trends in worldwide terrorism
- Dual-domain analysis of gun violence incidents in the United States
- Complexity of the COVID-19 pandemic in Maringa
- Equivalence relations and distances between time series with application to the Black Summer Australian bushfires
Cited by in corpus (5)
- Characteristics of price related fluctuations in Non-Fungible Token (NFT) market
- Collective infectivity of the pandemic over time and association with vaccine coverage and economic development
- Detecting imbalanced financial markets through time-varying optimization and nonlinear functionals
- Portfolio diversification with varying investor abilities
- Nonlinear shifts and dislocations in financial market structure and composition