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Life time of correlation between stocks prices on established and emerging markets

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  • Andrzej Buda
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    Abstract

    The correlation coefficient between stocks depends on price history and includes information on hierarchical structure in financial markets. It is useful for portfolio selection and estimation of risk. I introduce the Life Time of Correlation between stocks prices to know how far we should investigate the price history to obtain the optimal durability of correlation. I carry out my research on emerging (Poland) and established markets (in the USA, Great Britain and Germany). Other methods, including the Minimum Spanning Trees, tree half-life, decomposition of correlations and the Epps effect are also discussed.

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    File URL: http://arxiv.org/pdf/1105.6272
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1105.6272.

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    Date of creation: May 2011
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    Publication status: Published in A. Buda, A. Jarynowski,Life-time Of Correlation And Its Application (volume 1), Wydawnictwo Niezalezne, Wroclaw 2010, ISBN 978-83915272-9-0
    Handle: RePEc:arx:papers:1105.6272

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    Web page: http://arxiv.org/

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    1. Scalas, Enrico, 2006. "The application of continuous-time random walks in finance and economics," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 362(2), pages 225-239.
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