nep-tra New Economics Papers
on Transition Economics
Issue of 2012‒02‒15
three papers chosen by
J. David Brown
Heriot-Watt University

  1. Cross-correlation in financial dynamics By J. Shen; B. Zheng
  2. Anti-correlation and subsector structure in financial systems By X. F. Jiang; B. Zheng
  3. On return-volatility correlation in financial dynamics By J. Shen; B. Zheng

  1. By: J. Shen; B. Zheng
    Abstract: To investigate the universal structure of interactions in financial dynamics, we analyze the cross-correlation matrix C of price returns of the Chinese stock market, in comparison with those of the American and Indian stock markets. As an important emerging market, the Chinese market exhibits much stronger correlations than the developed markets. In the Chinese market, the interactions between the stocks in a same business sector are weak, while extra interactions in unusual sectors are detected. Using a variation of the two-factor model, we simulate the interactions in financial markets.
    Date: 2012–02
  2. By: X. F. Jiang; B. Zheng
    Abstract: With the random matrix theory, we study the spatial structure of the Chinese stock market, American stock market and global market indices. After taking into account the signs of the components in the eigenvectors of the cross-correlation matrix, we detect the subsector structure of the financial systems. The positive and negative subsectors are anti-correlated each other in the corresponding eigenmode. The subsector structure is strong in the Chinese stock market, while somewhat weaker in the American stock market and global market indices. Characteristics of the subsector structures in different markets are revealed.
    Date: 2012–01
  3. By: J. Shen; B. Zheng
    Abstract: With the daily and minutely data of the German DAX and Chinese indices, we investigate how the return-volatility correlation originates in financial dynamics. Based on a retarded volatility model, we may eliminate or generate the return-volatility correlation of the time series, while other characteristics, such as the probability distribution of returns and long-range time-correlation of volatilities etc., remain essentially unchanged. This suggests that the leverage effect or anti-leverage effect in financial markets arises from a kind of feedback return-volatility interactions, rather than the long-range time-correlation of volatilities and asymmetric probability distribution of returns. Further, we show that large volatilities dominate the return-volatility correlation in financial dynamics.
    Date: 2012–02

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