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Models, Algorithms and Technologies for Network Analysis pp 45–53Cite as

How Independent Are Stocks in an Independent Set of a Market Graph

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Part of the book series: Springer Proceedings in Mathematics & Statistics ((PROMS,volume 104))

Abstract

The problem of testing hypothesis of independence of random variables describing stock returns for a given set of stocks is considered. Two tests of independence are compared. The first test is the classical maximum likelihood test based on the determinant of a sample covariance matrix. The second test is the pairwise test used for market graph construction. This test is based on testing of pairwise independence of random variables describing stock returns by Pearson correlation test. The main result is the following: the maximum likelihood test is more powerful for a wide class of alternatives. Some examples are given.

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Acknowledgements

The authors are partly supported by National Research University Higher School of Economics, Russian Federation Government Grant N. 11.G34.31.0057 and RFFI Grant 14-01-00807.

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Authors and Affiliations

  1. National Research University Higher School of Economics, Bolshaya Pecherskaya, 25/12, Nizhny Novgorod, 603155, Russia

    Petr A. Koldanov & Ivan Grechikhin

Authors
  1. Petr A. Koldanov
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  2. Ivan Grechikhin
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Corresponding author

Correspondence to Petr A. Koldanov .

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Editors and Affiliations

  1. Laboratory of Algorithms and Technologies for Networks Analysis, Department of Applied Mathematics and Informatics, National Research University Higher School of Economics, Nizhny Novgorod, Russia

    Mikhail V. Batsyn

  2. Laboratory of Algorithms and Technologies for Networks Analysis, Department of Applied Mathematics and Informatics, National Research University Higher School of Economics, Nizhny Novgorod, Russia

    Valery A. Kalyagin

  3. Laboratory of Algorithms and Technologies for Networks Analysis, Department of Industrial and Systems Engineering, Center for Applied Optimization, National Research University Higher School of Economics, Nizhny Novgorod, Russia, University of Florida, Gainesville, Florida, USA

    Panos M. Pardalos

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Koldanov, P.A., Grechikhin, I. (2014). How Independent Are Stocks in an Independent Set of a Market Graph. In: Batsyn, M., Kalyagin, V., Pardalos, P. (eds) Models, Algorithms and Technologies for Network Analysis. Springer Proceedings in Mathematics & Statistics, vol 104. Springer, Cham. https://doi.org/10.1007/978-3-319-09758-9_5

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