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Computational Management Science

, Volume 10, Issue 2–3, pp 105–124 | Cite as

Simple measure of similarity for the market graph construction

  • Grigory A. Bautin
  • Valery A. KalyaginEmail author
  • Alexander P. Koldanov
  • Petr A. Koldanov
  • Panos M. Pardalos
Original Paper

Abstract

A simple measure of similarity for the construction of the market graph is proposed. The measure is based on the probability of the coincidence of the signs of the stock returns. This measure is robust, has a simple interpretation, is easy to calculate and can be used as measure of similarity between any number of random variables. For the case of pairwise similarity the connection of this measure with the sign correlation of Fechner is noted. The properties of the proposed measure of pairwise similarity in comparison with the classic Pearson correlation are studied. The simple measure of pairwise similarity is applied (in parallel with the classic correlation) for the study of Russian and Swedish market graphs. The new measure of similarity for more than two random variables is introduced and applied to the additional deeper analysis of Russian and Swedish markets. Some interesting phenomena for the cliques and independent sets of the obtained market graphs are observed.

Keywords

Measure of dependence of random variables Pearson correlation  Sign correlation Market graph Stock returns Independent sets Cliques  

Notes

Acknowledgments

The authors are partially supported by LATNA Laboratory, NRU HSE, RF government grant, ag. 11.G34.31.0057.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2013

Authors and Affiliations

  • Grigory A. Bautin
    • 1
  • Valery A. Kalyagin
    • 1
    Email author
  • Alexander P. Koldanov
    • 1
  • Petr A. Koldanov
    • 1
  • Panos M. Pardalos
    • 2
  1. 1.National Research University Higher School of EconomicsLaboratory LATNAMoscowRussia
  2. 2.Department of Industrial and Systems EngineeringUniversity of FloridaGainesvilleUSA

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