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One-factor model for the cross-correlation matrix in the Vietnamese stock market

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  • Nguyen, Quang

Abstract

Random matrix theory (RMT) has been applied to the analysis of the cross-correlation matrix of a financial time series. The most important findings of previous studies using this method are that the eigenvalue spectrum largely follows that of random matrices but the largest eigenvalue is at least one order of magnitude higher than the maximum eigenvalue predicted by RMT. In this work, we investigate the cross-correlation matrix in the Vietnamese stock market using RMT and find similar results to those of studies realized in developed markets (US, Europe, Japan) [9–18] as well as in other emerging markets[20,21,19,22]. Importantly, we found that the largest eigenvalue could be approximated by the product of the average cross-correlation coefficient and the number of stocks studied. We demonstrate this dependence using a simple one-factor model. The model could be extended to describe other characteristics of the realistic data.

Suggested Citation

  • Nguyen, Quang, 2013. "One-factor model for the cross-correlation matrix in the Vietnamese stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(13), pages 2915-2923.
    • Handle: RePEc:eee:phsmap:v:392:y:2013:i:13:p:2915-2923
    DOI: 10.1016/j.physa.2012.10.048
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    Cited by:

    1. Huang, Xuan & An, Haizhong & Fang, Wei & Gao, Xiangyun & Wang, Lijun & Sun, Xiaoqi, 2016. "Impact assessment of international anti-dumping events on synchronization and comovement of the Chinese photovoltaic stocks," Renewable and Sustainable Energy Reviews, Elsevier, vol. 59(C), pages 459-469.
    2. V. A. Kalyagin & A. P. Koldanov & P. A. Koldanov & P. M. Pardalos & V. A. Zamaraev, 2013. "Measures of uncertainty in market network analysis," Papers 1311.2273, arXiv.org.
    3. Nguyen, Q. & Nguyen, N.K.K., 2019. "Composition of the first principal component of a stock index — A comparison between SP500 and VNIndex," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 536(C).
    4. Kalyagin, V.A. & Koldanov, A.P. & Koldanov, P.A. & Pardalos, P.M. & Zamaraev, V.A., 2014. "Measures of uncertainty in market network analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 413(C), pages 59-70.

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