Mar

14

Goldman May Have Ousted Citigroup as Market Indicator, WSJ Says

March 13 (Bloomberg) — Goldman Sachs Group Inc. may have taken over from Citigroup Inc. as the best indicator of U.S. financial companies' health, the Wall Street Journal reported.

It's at the heart of the recent boom in bond sales, increasing use of derivatives, growth of hedge funds and buyout activity, the newspaper said.

Todd Harrison, the founder and chief executive officer of Minyanville.com, says what happens to Goldman shares on any given day is a good indicator of what's happening to the market as a whole, the Journal said.

This story, though lacking quantification, suggests many avenues of research. For example, what is the best predictive market indicator, which market is most correlated with others predictively, and, when certain relations hold is it bullish or bearish?

Sam Humbert adds:

I made a file of daily prices, from 2000 to now, of SPX and the usual brokerage suspects — GS C MS MER BSC LEH — and wrote a quickie R script to display the correlation matrix of daily contemporaneous log-changes, broken down by year.

"As advertised," among the brokers, C was the most correlated with the SPX every year from 2000 to 2004, whereas GS has been the most correlated, by far, in 2007 to date. My script/output follows:

> Data<- read.table('f:/BROKERS.txt',header=T)
> head(Data); tail(Data)

DATE--------Y---M--D-W---SPX-----GS----C----MS----MER----BSC---LEH
31-Dec-99 1999 12 31 5 1469.25 94.19 38.76 71.38 41.75  42.75 21.17
3-Jan-00  2000  1  3 1 1455.22 88.31 36.88 67.50 40.31  40.13 19.77
4-Jan-00  2000  1  4 2 1399.42 82.38 35.27 62.81 38.78  38.69 18.59
5-Jan-00  2000  1  5 3 1402.11 78.88 35.45 60.13 36.72  37.44 17.50
6-Jan-00  2000  1  6 4 1403.45 82.25 37.80 61.25 38.19  37.94 18.22
7-Jan-00  2000  1  7 5 1441.47 82.56 38.02 63.28 38.41  38.06 17.75

DATE--------Y---M-D-W---SPX-----GS-----C-----MS----MER---BSC---LEH
5-Mar-07  2007 3  5 1 1374.12 190.00 49.25 71.64 79.97 144.50 71.12
6-Mar-07  2007 3  6 2 1395.41 197.37 50.58 73.55 82.10 149.00 74.23
7-Mar-07  2007 3  7 3 1391.97 195.59 50.22 73.89 82.21 149.37 73.90
8-Mar-07  2007 3  8 4 1401.89 199.94 50.50 75.41 83.25 152.06 75.75
9-Mar-07  2007 3  9 5 1402.85 201.70 50.33 76.00 82.95 151.98 75.83
12-Mar-07 2007 3 12 1 1406.60 202.60 50.36 76.06 83.49 153.15 76.55

> Date<- 1:4
> Diff<- cbind(Data[-1,Date],apply(log
(Data[,-Date]),2,diff))
> lapply(split(Diff[,-Date],Diff[1]),function(m) round(100*cor(m)))

$`2000`
----SPX--GS---C--MS--MER-BSC-LEH
SPX 100  59  66  62  60  53  62
GS   59 100  59  79  71  61  73
C    66  59 100  62  60  60  65
MS   62  79  62 100  80  69  78
MER  60  71  60  80 100  69  78
BSC  53  61  60  69  69 100  76
LEH  62  73  65  78  78  76 100

$`2001`
----SPX--GS---C--MS--MER-BSC-LEH
SPX 100  75  81  77  75  78  77
GS   75 100  72  85  82  80  84
C    81  72 100  78  73  76  77
MS   77  85  78 100  82  83  85
MER  75  82  73  82 100  81  82
BSC  78  80  76  83  81 100  87
LEH  77  84  77  85  82  87 100

$`2002`
----SPX--GS---C--MS--MER-BSC-LEH
SPX 100  79  83  83  81  80  81
GS   79 100  78  88  85  83  89
C    83  78 100  77  76  74  75
MS   83  88  77 100  87  83  88
MER  81  85  76  87 100  82  85
BSC  80  83  74  83  82 100  87
LEH  81  89  75  88  85  87 100

$`2003`
----SPX--GS---C--MS--MER-BSC-LEH
SPX 100  83  84  82  84  77  77
GS   83 100  77  81  82  81  80
C    84  77 100  77  76  72  72
MS   82  81  77 100  83  77  75
MER  84  82  76  83 100  75  75
BSC  77  81  72  77  75 100  82
LEH  77  80  72  75  75  82 100

$`2004`
----SPX--GS---C--MS--MER-BSC-LEH
SPX 100  72  77  70  72  59  64
GS   72 100  53  75  76  71  75
C    77  53 100  58  56  50  51
MS   70  75  58 100  79  65  70
MER  72  76  56  79 100  65  74
BSC  59  71  50  65  65 100  73
LEH  64  75  51  70  74  73 100

$`2005`
----SPX--GS---C--MS--MER-BSC-LEH
SPX 100  65  60  56  76  63  67
GS   65 100  45  63  67  64  72
C    60  45 100  49  56  42  43
MS   56  63  49 100  64  56  57
MER  76  67  56  64 100  66  70
BSC  63  64  42  56  66 100  73
LEH  67  72  43  57  70  73 100

$`2006`
----SPX--GS---C--MS--MER-BSC-LEH
SPX 100  72  64  77  70  73  73
GS   72 100  49  78  78  80  82
C    64  49 100  52  49  51  47
MS   77  78  52 100  74  78  77
MER  70  78  49  74 100  77  79
BSC  73  80  51  78  77 100  85
LEH  73  82  47  77  79  85 100

$`2007`
----SPX--GS---C--MS--MER-BSC-LEH
SPX 100  88  77  84  76  78  78
GS   88 100  71  87  82  79  75
C    77  71 100  74  68  69  61
MS   84  87  74 100  89  85  78
MER  76  82  68  89 100  89  86
BSC  78  79  69  85  89 100  83
LEH  78  75  61  78  86  83 100

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