Lifetime of correlations between stocks on established and emerging markets

Andrzej Buda 

Abstract

The correlation coefficient between stocks depends on price history and includes information on hierarchical structure in financial markets. The lifetime of correlations between stock prices is introduced to find how far one should investigate price history to obtain the optimal durability of correlation for each pair of stocks. It is another efficient tool for a portfolio selection and estimation of risk. The mean lifetime of correlation (MLTC) and the standard deviation from MLTC is also analysed to detect optimal variety of correlations in portfolios. Theoretical background of the methods is discussed here from the practical point of view. This research is carried out on emerging (Poland, Hungary) and established markets (in the USA, UK, Japan and Germany) to compare the results and estimate the best possible price history used to compute correlation coefficients.

 

Auxiliary resources (full texts, presentations, posters, etc.)
  1. POSTER: Lifetime of correlations between stocks on established and emerging markets, PDF document, version 1.4, 0.2MB
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Presentation: Oral at 4 Ogólnopolskie Sympozjum "Fizyka w Ekonomii i Naukach Społecznych", by Andrzej Buda
See On-line Journal of 4 Ogólnopolskie Sympozjum "Fizyka w Ekonomii i Naukach Społecznych"

Submitted: 2009-02-26 19:56
Revised:   2009-06-07 00:48