The dynamics of speculative markets: the case of Portugal's PSI20

• Main Author: Araújo, Tanya
• Publication Date: 2008
• Other Authors: Louçã, Francisco
• Format: Article
• Language: eng
• Source: Repositórios Científicos de Acesso Aberto de Portugal (RCAAP)
• Download full: http://hdl.handle.net/10400.5/2358
• topic: PSI-20; Speculative Financial Markets; Stochastic Models

This paper develops and applies a stochastic geometry approach designed to describe the dynamics of the object emerging from the collective behavior of a complex system. In the current case, the market is analyzed according to the evolution of the population of 19 stocks of the PSI20 index for the period from October 2006 to April 2008. For this purpose, we apply a methodology previously developed in other work , in order to compare the dynamics and namely the changes in the evolution of the Portuguese financial market, as described by the index representing its most important firms. In the second section, we briefly recapitulate the methods and previous results, whereas in the third section the method is applied to the PSI20 data and the results are compared to our previous conclusions as obtained from the US market. We define a metric and use a properly defined distance, computed from the correlation coefficients between daily returns of the stocks. We proceed to the identification of the geometric object formed by the set of distances among such firms. The results prove that the resulting ellipsoid is a cloud of points, which is uniformly distributed along its first leading directions, whenever business-as-usual predominates, but that it is suffers severe distortions along several dimensions whenever a crisis occurs.