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

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  • Andrzej Buda

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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  • Andrzej Buda, 2011. "Life time of correlation between stocks prices on established and emerging markets," Papers 1105.6272, arXiv.org.
  • Handle: RePEc:arx:papers:1105.6272
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    File URL: http://arxiv.org/pdf/1105.6272
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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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    Cited by:

    1. Gautier Marti & Frank Nielsen & Miko{l}aj Bi'nkowski & Philippe Donnat, 2017. "A review of two decades of correlations, hierarchies, networks and clustering in financial markets," Papers 1703.00485, arXiv.org, revised May 2018.

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