Correlation patterns of NIKKEI index constituents

Katsuhiko Hayashi, Taisei Kaizoji () and Lukáš Pichl

Physica A: Statistical Mechanics and its Applications, 2007, vol. 383, issue 1, 16-21

Abstract: An analysis of minute-tick data from the Japanese stock index market is reported for a three-year period of 2000/7/4–2003/6/30. Correlation patterns and principal component distributions were determined for 180 constituents of the NIKKEI 225 index, excluding the effects of after-hours trading and constituent revisions. The first principal component describes about 30% of the total variance in constituent log returns (subject to slow decrease with the size of the correlation window), suggesting that a small number of physical parameters may describe the internal dynamics of the index, allowing for an adiabatic representation of index dynamics, and a self-consistent mean-field model of its constituents. Finally, it is shown that the introduction of a time gap into minute-tick data significantly improves the correlations of the price-weighed index with its constituents, even when such gap inserts are strictly penalized. This phenomenon corresponds to a heterogenous response time of index constituents to the adiabatic collective motion and also demonstrates the inhomogeneous nature of equidistant time ticks in financial trading.

Keywords: Principal component; Index constituent; NIKKEI 225; Mean-field theory; Sequence alignment; Time in economics (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:383:y:2007:i:1:p:16-21

DOI: 10.1016/j.physa.2007.04.109

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