Relationship between Entropy and Dimension of Financial Correlation-Based Network

Abstract

We analyze the dimension of a financial correlation-based network and apply our analysis to characterize the complexity of the network. First, we generalize the volume-based dimension and find that it is well defined by the correlation-based network. Second, we establish the relationship between the Rényi index and the volume-based dimension. Third, we analyze the meaning of the dimensions sequence, which characterizes the level of departure from the comparison benchmark based on the randomized time series. Finally, we use real stock market data from three countries for empirical analysis. In some cases, our proposed analysis method can more accurately capture the structural differences of networks than the power law index commonly used in previous studies.

Keywords

• fractal dimension
• Rényi index
• minimum spanning tree (MST)
• planar maximally filtered graph (PMFG)
• finance