Correlation of financial markets in times of crisis
AbstractUsing 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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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1102.1339.
Date of creation: Feb 2011
Date of revision: Mar 2011
Publication status: Published in Physica A 391 (2012) 187--208
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-19 (All new papers)
- NEP-CIS-2011-02-19 (Confederation of Independent States)
- NEP-RMG-2011-02-19 (Risk Management)
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