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Dynamics of correlations in the stock market

Author

Listed:
  • S. Drozdz
  • F. Gruemmer
  • F. Ruf
  • J. Speth

Abstract

Financial empirical correlation matrices of all the companies which both, the Deutsche Aktienindex (DAX) and the Dow Jones comprised during the time period 1990-1999 are studied using a time window of a limited, either 30 or 60, number of trading days. This allows a clear identification of the resulting correlations. On both these markets the decreases turn out to be always accompanied by a sizable separation of one strong collective eigenstate of the correlation matrix, while increases are more competitive and thus less collective. Generically, however, the remaining eigenstates of the correlation matrix are, on average, consistent with predictions of the random matrix theory. Effects connected with the world globalization are also discussed and a leading role of the Dow Jones is quantified. This effect is particularly spectacular during the last few years, and it turns out to be crucial to properly account for the time-zone delays in order to identify it.

Suggested Citation

  • S. Drozdz & F. Gruemmer & F. Ruf & J. Speth, 2001. "Dynamics of correlations in the stock market," Papers cond-mat/0103606, arXiv.org.
    • Handle: RePEc:arx:papers:cond-mat/0103606
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    References listed on IDEAS

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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. Laurent Laloux & Pierre Cizeau & Jean-Philippe Bouchaud & Marc Potters, 1998. "Noise dressing of financial correlation matrices," Science & Finance (CFM) working paper archive 500051, Science & Finance, Capital Fund Management.
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    Cited by:

    1. J. Kwapien & S. Drozdz & F. Gruemmer & F. Ruf & J. Speth, 2001. "Decomposing the stock market intraday dynamics," Papers cond-mat/0108068, arXiv.org.

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