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To lag or not to lag? How to compare indices of stock markets that operate at different times

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  • Leonidas Sandoval Junior
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    Abstract

    Financial markets worldwide do not have the same working hours. As a consequence, the study of correlation or causality between financial market indices becomes dependent on wether we should consider in computations of correlation matrices all indices in the same day or lagged indices. The answer this article proposes is that we should consider both. In this work, we use 79 indices of a diversity of stock markets across the world in order to study their correlation structure, and discover that representing in the same network original and lagged indices, we obtain a better understanding of how indices that operate at different hours relate to each other.

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    File URL: http://arxiv.org/pdf/1201.4586
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1201.4586.

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    Date of creation: Jan 2012
    Date of revision: Jul 2013
    Publication status: Published in Physica A 403 (2014) 227-243
    Handle: RePEc:arx:papers:1201.4586

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    Web page: http://arxiv.org/

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    1. Onnela, J.-P. & Chakraborti, A. & Kaski, K. & Kertész, J., 2003. "Dynamic asset trees and Black Monday," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 247-252.
    2. Sitabhra Sinha & Raj Kumar Pan, 2007. "Uncovering the Internal Structure of the Indian Financial Market: Cross-correlation behavior in the NSE," Papers 0704.2115, arXiv.org.
    3. Heimo, Tapio & Kaski, Kimmo & Saramäki, Jari, 2009. "Maximal spanning trees, asset graphs and random matrix denoising in the analysis of dynamics of financial networks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(2), pages 145-156.
    4. Ausloos, M. & Lambiotte, R., 2007. "Clusters or networks of economies? A macroeconomy study through Gross Domestic Product," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 382(1), pages 16-21.
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