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Cross-correlation dynamics in financial time series

Conlon, Thomas, Ruskin, Heather J. orcid logoORCID: 0000-0001-7101-2242 and Crane, Martin orcid logoORCID: 0000-0001-7598-3126 (2009) Cross-correlation dynamics in financial time series. Physica A Statistical Mechanics and its Applications, 388 (5). pp. 705-714. ISSN 0378-4371

Abstract
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. A basic one-factor model is proposed, which captures the main dynamical features of the eigenvalue spectrum of the empirical data. Through the addition of perturbations to the one-factor model, (leading to a market plus sectors model), additional sectoral features are added, resulting in an Inverse Participation Ratio comparable to that found for empirical data.
Metadata
Item Type:Article (Published)
Refereed:Yes
Uncontrolled Keywords:correlation matrix; eigenspectrum analysis; econophysics;
Subjects:Mathematics > Numerical analysis
Physical Sciences > Statistical physics
Computer Science > Computer simulation
Mathematics > Stochastic analysis
DCU Faculties and Centres:DCU Faculties and Schools > Faculty of Engineering and Computing > School of Computing
Publisher:Elsevier
Official URL:http://dx.doi.org/10.1016/j.physa.2008.10.047
Copyright Information:Copyright © 2008 Elsevier B.V
Use License:This item is licensed under a Creative Commons Attribution-NonCommercial-Share Alike 3.0 License. View License
ID Code:14964
Deposited On:27 Oct 2009 12:43 by Martin Crane . Last Modified 03 Oct 2018 11:21
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