Article2001

Quantifying and interpreting collective behavior in financial markets

Parameswaran Gopikrishnan · Bernd Rosenow · Vasiliki Plerou · Eugene Stanley

175 citations0/0 files storedPhysical review. E, Statistical physics, plasmas, fluids, and related interdisciplinary topics

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Complex Systems and Time Series Analysis Financial Markets and Investment Strategies Statistical Mechanics and Entropy

Abstract

Firms having similar business activities are correlated. We analyze two different cross-correlation matrices C constructed from (i) 30-min price fluctuations of 1000 US stocks for the two-year period 1994-95 and (ii) one-day price fluctuations of 422 US stocks for the 35-year period 1962-96. We find that the eigenvectors of C corresponding to the largest eigenvalues allow us to partition the set of all stocks into distinct subsets. These subsets are similar to business sectors, and are stable for extended periods of time. We find that price fluctuations of these subsets are characterized by power-law decaying time correlations, reminiscent of strongly interacting systems.

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References

1982Modern Portfolio Theory and Investment Analysis.1999Hierarchical structure in financial markets 1999Noise Dressing of Financial Correlation Matrices 1999Universal and Nonuniversal Properties of Cross Correlations in Financial Time Series 1999Statistical properties of the volatility of price fluctuations 1998A Langevin approach to stock market fluctuations and crashes

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