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Dynamic Connectivity in a Financial Network Using Time-Varying DCCA Correlation Coefficients

Author

Listed:
  • Paulo Ferreira

    (Polytechnic Institute of Portalegre; University of Évora, Portugal)

  • Oussama Tilfani

    (Cadi Ayyad University, Morocco)

  • Éder Pereira

    (Federal Institute of Maranhão, Brazil)

  • Cleónidas Tavares

    (SENAI CIMATEC School of Technology, Brazil)

  • Hernane Pereira

    (SENAI CIMATEC School of Technology, Brazil)

  • My Youssef El Boukfaoui

    (Cadi Ayyad University, Morocco)

Abstract

This paper aims to analyse the connectivity of 13 stock markets, between 1998 and 2019, with a time-varying proposal, to evaluate evolution of the linkage between these markets over time. To do so, we propose to use a network built based on the correlation coefficients from the Detrended Cross-Correlation Analysis, using a sliding windows approach. Besides allowing for analysis over time, our approach also enables us to verify how the network behaves for different time scales, which enriches the analysis. We use two different properties of networks: global efficiency and average grade, to measure the network’s connectivity over time. We find that the markets under analysis became more connected before the subprime crisis, with this behavior extending even after the Eurozone crisis, showing that during extreme events there is an increase in financial risk, as found in the international literature.

Suggested Citation

  • Paulo Ferreira & Oussama Tilfani & Éder Pereira & Cleónidas Tavares & Hernane Pereira & My Youssef El Boukfaoui, 2021. "Dynamic Connectivity in a Financial Network Using Time-Varying DCCA Correlation Coefficients," Econometric Research in Finance, SGH Warsaw School of Economics, Collegium of Economic Analysis, vol. 6(1), pages 57-75.
    • Handle: RePEc:sgh:erfinj:v:6:y:2021:i:1:p:57-75
    DOI: https://doi.org/10.2478/erfin-2021-0004
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    Cited by:

    1. Nie, Chun-Xiao, 2022. "Analysis of critical events in the correlation dynamics of cryptocurrency market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 586(C).

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