Understanding the Interrelationship Between Commodity and Stock Indices Daily Movement Using ACE and Recurrence Analysis
01 Jan 2014-pp 211-230
TL;DR: In this article, the authors analyzed the complex dynamics of the daily variation of two indices of stock and commodity exchange respectively of India and the US market and found that the dynamics of Indian stock and commodities exchanges have a lagged correlation while those of US market have a lead correlation and a weaker correlation.
Abstract: The relationship between the temporal evolution of the commodity market and the stock market has long term implications for policy makers, and particularly in the case of emerging markets, the economy as a whole. We analyze the complex dynamics of the daily variation of two indices of stock and commodity exchange respectively of India. To understand whether there is any difference between emerging markets and developed markets in terms of a dynamic correlation between the two market indices, we also examine the complex dynamics of stock and commodity indices of the US market. We compare the daily variation of the commodity and stock prices in the two countries separately. For this purpose we have considered commodity India along with Dow Jones Industrial Average (DJIA) and Dow Jones-AIG Commodity (DJ-AIGCI) indices for stock and commodities, USA, from June 2005 to August 2008. To analyse the dynamics of the time variation of the indices we use a set of analytical methods based on recurrence plots. Our studies show that the dynamics of the Indian stock and commodity exchanges have a lagged correlation while those of US market have a lead correlation and a weaker correlation.
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01 Jan 2010
TL;DR: The results show that synchronization of growth rates were higher among the euro area member states during the second half of the 1980s and from 1997 to roughly 2002, suggesting that apart from specific times when European integration initiatives were being implemented, globalization was likely the dominant factor behind international business cycle synchronization.
Abstract: Synchronization of growth rates are an important feature of international business cycles, particularly in relation to regional integration projects such as the single currency in Europe. Synchronization of growth rates clearly enhances the effectiveness of European Central Bank monetary policy, ensuring that policy changes are attuned to the dynamics of growth and business cycles in the majority of member states. In this paper a dissimilarity metric is constructed by measuring the topological differences between the GDP growth patterns in recurrence plots for individual countries. The results show that synchronization of growth rates were higher among the Euro area member states during the second half of the 1980s and from 1997 to roughly 2002. Apart from these two time periods, Euro area member states do not appear to be more synchronized than a group of major international countries, signifying that globalization was the major cause of international business cycle synchronization.
22 citations
01 Jan 2016
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19 citations
TL;DR: Experimental results show that the generalized recurrence network approach yields superior performance in the visualization of recurrence patterns in spatial data and in the extraction of salient features to characterize recurrence dynamics in spatial systems.
Abstract: Nonlinear dynamical systems exhibit complex recurrence behaviors. Recurrence plot is widely used to graphically represent the patterns of recurrence dynamics and further facilitates the quantification of recurrence patterns, namely, recurrence quantification analysis. However, traditional recurrence methods tend to be limited in their ability to handle spatial data due to high dimensionality and geometric characteristics. Prior efforts have been made to generalize the recurrence plot to a four-dimensional space for spatial data analysis, but this framework can only provide graphical visualization of recurrence patterns in the projected reduced-dimension space (i.e., two- or three- dimensions). In this paper, we propose a new weighted recurrence network approach for spatial data analysis. A weighted network model is introduced to represent the recurrence patterns in spatial data, which account for both pixel intensities and spatial distance simultaneously. Note that each network node represents a location in the high-dimensional spatial data. Network edges and weights preserve complex spatial structures and recurrence patterns. Network representation is shown to be an effective means to provide a complete picture of recurrence patterns in the spatial data. Furthermore, we leverage network statistics to characterize and quantify recurrence properties and features in the spatial data. Experimental results in both simulation and real-world case studies show that the generalized recurrence network approach yields superior performance in the visualization of recurrence patterns in spatial data and in the extraction of salient features to characterize recurrence dynamics in spatial systems.
13 citations
01 Jan 2016
TL;DR: In this paper, a matrix completion based approach is proposed to restore the corrupted cross-recurrence plot (CRP) prior to the estimation of the time-synchronization relationship.
Abstract: The success of a trading strategy can be significantly enhanced by tracking accurately the implied volatility changes, which refers to the amount of uncertainty or risk about the degree of changes in a market index. This fosters the need for accurate estimation of the time-synchronization profile between a given market index and its associated volatility index. In this chapter, we advance existing solutions, which are based widely on the typical correlation, for identifying this temporal interdependence. To this end, cross-recurrence plot (CRP) analysis is exploited for extracting the underlying dynamics of a given market and volatility indexes pair, along with their time-synchronization profile. However, CRPs of degraded quality, for instance due to missing information, may yield a completely erroneous estimation of this profile. To overcome this drawback, a restoration stage based on the concept of matrix completion is applied on a corrupted CRP prior to the estimation of the time-synchronization relationship. A performance evaluation on the S&P 500 index and its associated VIX volatility index reveals the superior capability of our proposed approach in restoring accurately their CRP and subsequently estimating a temporal relation between the two indexes even when \(80\,\%\) of CRP values are missing.
3 citations
Cites background from "Understanding the Interrelationship..."
...CRPs, in specific, have been already exploited in the financial industry to analyze convergence and synchronicity of business and growth cycles [24], to examine the interactive behavior between the hourly accepted weighted average price and the hourly required load in electricity markets [25], as well as for understanding the interrelation between commodity and stock indexes [26] or the coupling of the European banking and insurance sectors [27]....
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TL;DR: The cross-recurrence plot analysis is used as a nonlinear method for quantifying the multidimensional coupling in the time domain of two time series and for determining their state of synchronization.
Abstract: Cross-correlation analysis is a powerful tool for understanding the mutual dynamics of time series. This study introduces a new method for predicting the future state of synchronization of the dynamics of two financial time series. To this end, we use the cross recurrence plot analysis as a nonlinear method for quantifying the multidimensional coupling in the time domain of two time series and for determining their state of synchronization. We adopt a deep learning framework for methodologically addressing the prediction of the synchronization state based on features extracted from dynamically sub-sampled cross recurrence plots. We provide extensive experiments on several stocks, major constituents of the S &P100 index, to empirically validate our approach. We find that the task of predicting the state of synchronization of two time series is in general rather difficult, but for certain pairs of stocks attainable with very satisfactory performance (84% F1-score, on average).
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Book•
01 Jan 1997TL;DR: In this paper, Campbell, Lo, and MacKinlay present an attempt by three well-known and well-respected scholars to fill an acknowledged void in the empirical finance literature, a text covering the burgeoning field of empirical finance.
Abstract: This book is an ambitious effort by three well-known and
well-respected scholars to fill an acknowledged void in the
literature—a text covering the burgeoning field of empirical finance.
As the authors note in the preface, there are several excellent books
covering financial theory at a level suitable for a Ph.D. class or as
a reference for academics and practitioners, but there is little or
nothing similar that covers econometric methods and applications.
Perhaps the closest existing text is the recent addition to the Wiley
Series in Financial and Quantitative Analysis. written by Cuthbertson
(1996). The major difference between the books is that Cuthbertson
focuses exclusively on asset pricing in the stock, bond, and foreign
exchange markets, whereas Campbell, Lo, and MacKinlay (henceforth CLM)
consider empirical applications throughout the field of finance,
including corporate finance, derivatives markets, and market
microstructure. The level of anticipation preceding publication
can be partly measured by the fact that at least three reviews
(including this one) have appeared since the book arrived. Moreover,
in their reviews, both Harvey (1998) and Tiso (1998) comment on the
need for such a text, a sentiment that has been echoed by numerous
finance academics.
7,169 citations
TL;DR: In this paper, the mutual information I is examined for a model dynamical system and for chaotic data from an experiment on the Belousov-Zhabotinskii reaction.
Abstract: The mutual information I is examined for a model dynamical system and for chaotic data from an experiment on the Belousov-Zhabotinskii reaction. An N logN algorithm for calculating I is presented. As proposed by Shaw, a minimum in I is found to be a good criterion for the choice of time delay in phase-portrait reconstruction from time-series data. This criterion is shown to be far superior to choosing a zero of the autocorrelation function.
4,160 citations
TL;DR: The issue of determining an acceptable minimum embedding dimension is examined by looking at the behavior of near neighbors under changes in the embedding dimensions from d\ensuremath{\rightarrow}d+1 by examining the manner in which noise changes the determination of ${\mathit{d}}_{\math it{E}}$.
Abstract: We examine the issue of determining an acceptable minimum embedding dimension by looking at the behavior of near neighbors under changes in the embedding dimension from d\ensuremath{\rightarrow}d+1. When the number of nearest neighbors arising through projection is zero in dimension ${\mathit{d}}_{\mathit{E}}$, the attractor has been unfolded in this dimension. The precise determination of ${\mathit{d}}_{\mathit{E}}$ is clouded by ``noise,'' and we examine the manner in which noise changes the determination of ${\mathit{d}}_{\mathit{E}}$. Our criterion also indicates the error one makes by choosing an embedding dimension smaller than ${\mathit{d}}_{\mathit{E}}$. This knowledge may be useful in the practical analysis of observed time series.
3,375 citations
TL;DR: The aim of this work is to provide the readers with the know how for the application of recurrence plot based methods in their own field of research, and detail the analysis of data and indicate possible difficulties and pitfalls.
2,993 citations
TL;DR: In this article, a graphical tool for measuring the time constancy of dynamical systems is presented and illustrated with typical examples, and the tool can be used to measure the time complexity of a dynamical system.
Abstract: A new graphical tool for measuring the time constancy of dynamical systems is presented and illustrated with typical examples.
2,843 citations