title: Identifying states of a financial market.
abstract: The understanding of complex systems has become a central issue because such systems exist in a wide range of scientific disciplines. We here focus on financial markets as an example of a complex system. In particular we analyze financial data from the S&P 500 stocks in the 19-year period 1992-2010. We propose a definition of state for a financial market and use it to identify points of drastic change in the correlation structure. These points are mapped to occurrences of financial crises. We find that a wide variety of characteristic correlation structure patterns exist in the observation time window, and that these characteristic correlation structure patterns can be classified into several typical "market states". Using this classification we recognize transitions between different market states. A similarity measure we develop thus affords means of understanding changes in states and of recognizing developments not previously seen.
authors.affiliation: Center of Polymer Studies, Boston University, USA. michael@muennix.com
authors.forename: Michael C
authors.initials: MC
authors.lastname: Münnix
authors.forename: Takashi
authors.initials: T
authors.lastname: Shimada
authors.forename: Rudi
authors.initials: R
authors.lastname: Schäfer
authors.forename: Francois
authors.initials: F
authors.lastname: Leyvraz
authors.forename: Thomas H
authors.initials: TH
authors.lastname: Seligman
authors.forename: Thomas
authors.initials: T
authors.lastname: Guhr
authors.forename: H Eugene
authors.initials: HE
authors.lastname: Stanley
mesh_terms: D000465:Algorithms; D016000:Cluster Analysis; D005376:Financial Management / Q000191:economics*; D006801:Humans; D007449:Investments / Q000191:economics*; D040541:Marketing / Q000145:classification / Q000191:economics*; D018803:Models, Economic; D013997:Time Factors