Collective behavior of stock price movements in an emerging market
AbstractTo investigate the universality of the structure of interactions in different markets, we analyze the cross-correlation matrix C of stock price fluctuations in the National Stock Exchange (NSE) of India. We find that this emerging market exhibits strong correlations in the movement of stock prices compared to developed markets, such as the New York Stock Exchange (NYSE). This is shown to be due to the dominant influence of a common market mode on the stock prices. By comparison, interactions between related stocks, e.g., those belonging to the same business sector, are much weaker. This lack of distinct sector identity in emerging markets is explicitly shown by reconstructing the network of mutually interacting stocks. Spectral analysis of C for NSE reveals that, the few largest eigenvalues deviate from the bulk of the spectrum predicted by random matrix theory, but they are far fewer in number compared to, e.g., NYSE. We show this to be due to the relative weakness of intra-sector interactions between stocks, compared to the market mode, by modeling stock price dynamics with a two-factor model. Our results suggest that the emergence of an internal structure comprising multiple groups of strongly coupled components is a signature of market development.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 0704.0773.
Date of creation: Apr 2007
Date of revision: Nov 2007
Publication status: Published in Phys. Rev. E 76, 046116 (2007) (9 pages)
Contact details of provider:
Web page: http://arxiv.org/
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Lee, Junghoon & Youn, Janghyuk & Chang, Woojin, 2012. "Intraday volatility and network topological properties in the Korean stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(4), pages 1354-1360.
- Sitabhra Sinha & Uday Kovur, 2013. "Uncovering the network structure of the world currency market: Cross-correlations in the fluctuations of daily exchange rates," Papers 1305.0239, arXiv.org.
- Wang, Gang-Jin & Xie, Chi & Chen, Shou & Yang, Jiao-Jiao & Yang, Ming-Yan, 2013. "Random matrix theory analysis of cross-correlations in the US stock market: Evidence from Pearson’s correlation coefficient and detrended cross-correlation coefficient," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(17), pages 3715-3730.
- Ahn, Sanghyun & Lim, G.C. & Kim, S.H. & Kim, Soo Yong & Yoon, Kwon Youb & Stanfield, Joseph Lee & Kim, Kyungsik, 2011. "Analysis of stock prices of mining business," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(12), pages 2340-2349.
- Wang, Junjie & Zhou, Shuigeng & Guan, Jihong, 2011. "Characteristics of real futures trading networks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(2), pages 398-409.
- Eterovic, Nicolas A. & Eterovic, Dalibor S., 2013. "Separating the wheat from the chaff: Understanding portfolio returns in an emerging market," Emerging Markets Review, Elsevier, vol. 16(C), pages 145-169.
- Raj Kumar Pan & Sitabhra Sinha, 2006.
"Inverse cubic law of index fluctuation distribution in Indian markets,"
physics/0607014, arXiv.org, revised Dec 2007.
- Pan, Raj Kumar & Sinha, Sitabhra, 2008. "Inverse-cubic law of index fluctuation distribution in Indian markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(8), pages 2055-2065.
- Hao Meng & Wen-Jie Xie & Zhi-Qiang Jiang & Boris Podobnik & Wei-Xing Zhou & H. Eugene Stanley, 2013. "Systemic risk and spatiotemporal dynamics of the US housing market," Papers 1306.2831, arXiv.org.
- Dalibor Eterovic, 2012. "Separating the Wheat from the Chaff: Understanding Portfolio Returns in an Emerging Market," Working Papers wp_025, Adolfo Ibáñez University, School of Government.
- Sandoval, Leonidas & Franca, Italo De Paula, 2012. "Correlation of financial markets in times of crisis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(1), pages 187-208.
- F. Y. Ouyang & B. Zheng & X. F. Jiang, 2014. "Spatial and temporal structures of four financial markets in Greater China," Papers 1402.1046, arXiv.org.
- Leonidas Sandoval Junior & Italo De Paula Franca, 2011. "Correlation of financial markets in times of crisis," Papers 1102.1339, arXiv.org, revised Mar 2011.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators).
If references are entirely missing, you can add them using this form.