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Correlation of financial markets in times of crisis

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  • Leonidas Sandoval Junior
  • Italo De Paula Franca
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    Abstract

    Using the eigenvalues and eigenvectors of correlations matrices of some of the main financial market indices in the world, we show that high volatility of markets is directly linked with strong correlations between them. This means that markets tend to behave as one during great crashes. In order to do so, we investigate several financial market crises that occurred in the years 1987 (Black Monday), 1989 (Russian crisis), 2001 (Burst of the dot-com bubble and September 11), and 2008 (Subprime Mortgage Crisis), which mark some of the largest downturns of financial markets in the last three decades.

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    File URL: http://arxiv.org/pdf/1102.1339
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1102.1339.

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    Date of creation: Feb 2011
    Date of revision: Mar 2011
    Publication status: Published in Physica A 391 (2012) 187--208
    Handle: RePEc:arx:papers:1102.1339

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    Web page: http://arxiv.org/

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    Cited by:
    1. Hu, Sen & Yang, Hualei & Cai, Boliang & Yang, Chunxia, 2013. "Research on spatial economic structure for different economic sectors from a perspective of a complex network," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(17), pages 3682-3697.
    2. Leonidas Sandoval Junior, 2011. "A Map of the Brazilian Stock Market," Papers 1107.4146, arXiv.org, revised Mar 2013.

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