Reframing the S\&P500 Network of Stocks along the \nth{21} Century (1811.03092v2)

Abstract: Since the beginning of the new millennium, stock markets went through every state from long-time troughs, trade suspensions to all-time highs. The literature on asset pricing hence assumes random processes to be underlying the movement of stock returns. Observed procyclicality and time-varying correlation of stock returns tried to give the apparently random behavior some sort of structure. However, common misperceptions about the co-movement of asset prices in the years preceding the \emph{Great Recession} and the \emph{Global Commodity Crisis}, is said to have even fueled the crisis' economic impact. Here we show how a varying macroeconomic environment influences stocks' clustering into communities. From a sample of 296 stocks of the S&P 500 index, distinct periods in between 2004 and 2011 are used to develop networks of stocks. The Minimal Spanning Tree analysis of those time-varying networks of stocks demonstrates that the crises of 2007-2008 and 2010-2011 drove the market to clustered community structures in both periods, helping to restore the stock market's ceased order of the pre-crises era. However, a comparison of the emergent clusters with the \textit{General Industry Classification Standard} conveys the impression that industry sectors do not play a major role in that order.