State and group dynamics of world stock market by principal component analysis

Ashadun Nobi and Jae Woo Lee

Physica A: Statistical Mechanics and its Applications, 2016, vol. 450, issue C, 85-94

Abstract: We study the dynamic interactions and structural changes by a principal component analysis (PCA) to cross-correlation coefficients of global financial indices in the years 1998–2012. The variances explained by the first PC increase with time and show a drastic change during the crisis. A sharp change in PC coefficient implies a transition of market state, a situation which occurs frequently in the American and Asian indices. However, the European indices remain stable over time. Using the first two PC coefficients, we identify indices that are similar and more strongly correlated than the others. We observe that the European indices form a robust group over the observation period. The dynamics of the individual indices within the group increase in similarity with time, and the dynamics of indices are more similar during the crises. Furthermore, the group formation of indices changes position in two-dimensional spaces due to crises. Finally, after a financial crisis, the difference of PCs between the European and American indices narrows.

Keywords: Principal component analysis; Stock market; Global financial crisis (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378437116000340
Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:450:y:2016:i:c:p:85-94

DOI: 10.1016/j.physa.2015.12.144

Access Statistics for this article

Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

More articles in Physica A: Statistical Mechanics and its Applications from Elsevier
Bibliographic data for series maintained by Catherine Liu ().