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Risks 2016, 4(2), 13; doi:10.3390/risks4020013

Community Analysis of Global Financial Markets

1
Center for Polymer Studies and Department of Physics, Boston University, 590 Commonwealth Avenue, Boston, MA 02215, USA
2
Administrative Sciences Department, Metropolitan College, Boston University, 808 Commonwealth Avenue, Boston, MA 02215, USA
3
Department of Physics, Bar-Ilan University, Ramat-Gan 52900, Israel
*
Author to whom correspondence should be addressed.
Academic Editor: Weidong Tian
Received: 9 February 2016 / Revised: 15 April 2016 / Accepted: 6 May 2016 / Published: 13 May 2016
(This article belongs to the Collection Systemic Risk and Reinsurance)
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Abstract

We analyze the daily returns of stock market indices and currencies of 56 countries over the period of 2002–2012. We build a network model consisting of two layers, one being the stock market indices and the other the foreign exchange markets. Synchronous and lagged correlations are used as measures of connectivity and causality among different parts of the global economic system for two different time intervals: non-crisis (2002–2006) and crisis (2007–2012) periods. We study community formations within the network to understand the influences and vulnerabilities of specific countries or groups of countries. We observe different behavior of the cross correlations and communities for crisis vs. non-crisis periods. For example, the overall correlation of stock markets increases during crisis while the overall correlation in the foreign exchange market and the correlation between stock and foreign exchange markets decrease, which leads to different community structures. We observe that the euro, while being central during the relatively calm period, loses its dominant role during crisis. Furthermore we discover that the troubled Eurozone countries, Portugal, Italy, Greece and Spain, form their own cluster during the crisis period. View Full-Text
Keywords: community structure; complex networks; financial markets community structure; complex networks; financial markets
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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Vodenska, I.; Becker, A.P.; Zhou, D.; Kenett, D.Y.; Stanley, H.E.; Havlin, S. Community Analysis of Global Financial Markets. Risks 2016, 4, 13.

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