Ontonix, a leading research consultancy on complexity management has completed a study that compares levels of complexity between NASDAQ and S&P 500 firms. Here is their conclusion.
How complex is the economy getting?
If you still have doubts that the World is becoming more complex take a look at the plots below. Ontonix recently completed a study of the complexity of the major stock market indices and this is what they found. The NASDQ has a complexity gradient of approximately 1.3%/year while the S&P500 around 0.5%/year. This means that the NASDAQ outpaces the S&P 500 in terms of becoming a globally more difficult and turbulent market.This is quite intuitive. We live in an age dominated technology and it is to be expected that it impacts the global economy significantly, just as it impacts our lives. Any financial products based on the above indices (as well as other stock markets indices) will also possess similar characteristics.
The values of complexity reported on the above plots depend of course on the width of the respective data windows. A more sophisticated analysis, taking into account shorter and overlapping periods of historical data may be performed. See for example the plots below, where one may clearly identify cycles and oscillations (both plots are relative to the NASDAQ).
Economical cycles are of course of great interest to stock market analysts and economists in general. Based on the complexity analyses such as the ones show here, it is possible to perform extrapolations and estimates not only for the global market indices but for any asset portfolio for which historical data is available.
Especially useful may be the relative Robustness and Entropy plots – the ones below are relative to the NASDAQ and reflect the first 250 trading days of 2007. The overall trend is decreasing robustness and increasing complexity. This indicates increasing overall volatility, while the oscillations of entropy point to growing market "turbulence".