A Decadal Analysis of the Lead-Lag Effect in the NYSE

ArXiv ID: 2312.10084 “View on arXiv”

Authors: Unknown

Abstract

As is widely known, the stock market is a complex system in which a multitude of factors influence the performance of individual stocks and the market as a whole. One method for comprehending – and potentially predicting – stock market behavior is through network analysis, which can offer insights into the relationships between stocks and the overall market structure. In this paper, we seek to address the question: Can network analysis of the stock market, specifically in observation of the lead-lag effect, provide valuable insights for investors and market analysts?

Keywords: Network Analysis, Stock Market, Lead-Lag Effect, Market Structure

Complexity vs Empirical Score

  • Math Complexity: 4.0/10
  • Empirical Rigor: 6.0/10
  • Quadrant: Street Traders
  • Why: The paper employs a straightforward network analysis and a blended strategy (CAPM + out-degree) with minimal advanced mathematics, but demonstrates strong empirical rigor through a decade-long backtest on S&P 500 data, portfolio simulations, and parameter exploration with concrete results.
  flowchart TD
    A["Research Question<br/>Can network analysis of the NYSE<br/>reveal lead-lag effects?"] --> B["Data Acquisition<br/>NYSE daily closing prices<br/>10-year period"]
    B --> C["Preprocessing<br/>Returns calculation &amp; Data cleaning"]
    C --> D["Methodology<br/>Cross-correlation &amp; Granger Causality"]
    D --> E["Network Construction<br/>Weighted graph based<br/>on lead-lag strength"]
    E --> F["Community Detection &amp; Analysis<br/>Identify clusters &amp; influential nodes"]
    F --> G["Key Findings<br/>Predictive patterns &amp; Sector-based<br/>lead-lag dynamics"]