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Cross-correlation dynamics in financial time series

Listed author(s):
  • Conlon, T.
  • Ruskin, H.J.
  • Crane, M.
Registered author(s):

    The dynamics of the equal-time cross-correlation matrix of multivariate financial time series is explored by examination of the eigenvalue spectrum over sliding time windows. Empirical results for the S&P 500 and the Dow Jones Euro Stoxx 50 indices reveal that the dynamics of the small eigenvalues of the cross-correlation matrix, over these time windows, oppose those of the largest eigenvalue. This behaviour is shown to be independent of the size of the time window and the number of stocks examined.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0378437108008960
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    Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

    Volume (Year): 388 (2009)
    Issue (Month): 5 ()
    Pages: 705-714

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    Handle: RePEc:eee:phsmap:v:388:y:2009:i:5:p:705-714
    DOI: 10.1016/j.physa.2008.10.047
    Contact details of provider: Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

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    1. Drożdż, S & Grümmer, F & Górski, A.Z & Ruf, F & Speth, J, 2000. "Dynamics of competition between collectivity and noise in the stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 287(3), pages 440-449.
    2. Conlon, T. & Ruskin, H.J. & Crane, M., 2007. "Random matrix theory and fund of funds portfolio optimisation," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 382(2), pages 565-576.
    3. Vasiliki Plerou & Parameswaran Gopikrishnan & Bernd Rosenow & Luis A. Nunes Amaral & H. Eugene Stanley, 1999. "Universal and non-universal properties of cross-correlations in financial time series," Papers cond-mat/9902283, arXiv.org.
    4. Conlon, T. & Crane, M. & Ruskin, H.J., 2008. "Wavelet multiscale analysis for Hedge Funds: Scaling and strategies," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(21), pages 5197-5204.
    5. Sharifi, S. & Crane, M. & Shamaie, A. & Ruskin, H., 2004. "Random matrix theory for portfolio optimization: a stability approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 335(3), pages 629-643.
    6. LeBaron, Blake & Arthur, W. Brian & Palmer, Richard, 1999. "Time series properties of an artificial stock market," Journal of Economic Dynamics and Control, Elsevier, vol. 23(9-10), pages 1487-1516, September.
    7. Kwapień, J. & Drożdż, S. & Oświe¸cimka, P., 2006. "The bulk of the stock market correlation matrix is not pure noise," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 359(C), pages 589-606.
    8. Zdzislaw Burda & Jerzy Jurkiewicz, 2003. "Signal and Noise in Financial Correlation Matrices," Papers cond-mat/0312496, arXiv.org, revised Feb 2004.
    9. Gabor Papp & Szilard Pafka & Maciej A. Nowak & Imre Kondor, 2005. "Random Matrix Filtering in Portfolio Optimization," Papers physics/0509235, arXiv.org.
    10. Burda, Zdzisław & Jurkiewicz, Jerzy, 2004. "Signal and noise in financial correlation matrices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 344(1), pages 67-72.
    11. Malevergne, Y. & Sornette, D., 2004. "Collective origin of the coexistence of apparent random matrix theory noise and of factors in large sample correlation matrices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 331(3), pages 660-668.
    12. Wilcox, Diane & Gebbie, Tim, 2004. "On the analysis of cross-correlations in South African market data," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 344(1), pages 294-298.
    13. Drożdż, S & Grümmer, F & Ruf, F & Speth, J, 2001. "Towards identifying the world stock market cross-correlations: DAX versus Dow Jones," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 294(1), pages 226-234.
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