BackgroundIn the current era of strong worldwide market couplings the global financial village became highly prone to systemic collapses, events that can rapidly sweep throughout the entire village.Methodology/Principal FindingsWe present a new methodology to assess and quantify inter-market relations. The approach is based on the correlations between the market index, the index volatility, the market Index Cohesive Force and the meta-correlations (correlations between the intra-correlations.) We investigated the relations between six important world markets—U.S., U.K., Germany, Japan, China and India—from January 2000 until December 2010. We found that while the developed “western” markets (U.S., U.K., Germany) are highly correlated, the interdependencies between these markets and the developing “eastern” markets (India and China) are volatile and with noticeable maxima at times of global world events. The Japanese market switches “identity”—it switches between periods of high meta-correlations with the “western” markets and periods when it behaves more similarly to the “eastern” markets.Conclusions/SignificanceThe methodological framework presented here provides a way to quantify the evolvement of interdependencies in the global market, evaluate a world financial network and quantify changes in the world inter market relations. Such changes can be used as precursors to the agitation of the global financial village. Hence, the new approach can help to develop a sensitive “financial seismograph” to detect early signs of global financial crises so they can be treated before they develop into worldwide events.
In this review we discuss advances in the agent-based modeling of economic and social systems. We show the state of the art of the heuristic design of agents and how behavioral economics and laboratory experiments have improved the modeling of agent behavior. We further discuss how economic networks and social systems can be modeled and we discuss novel methodology and data sources. Lastly, we present an overview of estimation techniques to calibrate and validate agent-based models and show avenues for future research.
The high degree of coupling between global financial markets has made the financial village prone to systemic collapses. Here we present a new methodology to assess and quantify inter-market relations. The approach is based on meta-correlations (correlations between the intra-market correlations), and a Dependency Network analysis approach. We investigated the relations between six important world markets -U.S., U.K., Germany, Japan, China and India from January 2000 until December 2010. Our findings show that while the developed Western markets (U.S., U.K., Germany), are highly correlated, the inter-dependencies between these markets and the Eastern markets (India and China) are very volatile and with noticeable maxima at times of global world events. Finally, using the Dependency network approach, we quantify the flow of information between the different markets, and how markets affect each other. We observe that German and U.K. stocks show a large amount of coupling, while other markets are more segmented. These and additional reported findings illustrate that this methodological framework provides a way to quantify interdependencies in the global market and their
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