One-factor model for the cross-correlation matrix in the Vietnamese stock market

Quang Nguyen

Physica A: Statistical Mechanics and its Applications, 2013, vol. 392, issue 13, 2915-2923

Abstract: Random matrix theory (RMT) has been applied to the analysis of the cross-correlation matrix of a financial time series. The most important findings of previous studies using this method are that the eigenvalue spectrum largely follows that of random matrices but the largest eigenvalue is at least one order of magnitude higher than the maximum eigenvalue predicted by RMT. In this work, we investigate the cross-correlation matrix in the Vietnamese stock market using RMT and find similar results to those of studies realized in developed markets (US, Europe, Japan) [9–18] as well as in other emerging markets[20,21,19,22]. Importantly, we found that the largest eigenvalue could be approximated by the product of the average cross-correlation coefficient and the number of stocks studied. We demonstrate this dependence using a simple one-factor model. The model could be extended to describe other characteristics of the realistic data.

Keywords: Cross-correlation; Random matrix; Eigenvalue (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:392:y:2013:i:13:p:2915-2923

DOI: 10.1016/j.physa.2012.10.048

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