Understanding the pattern of the BSE Sensex

I. Mukherjee, Soumya Chatterjee, A. Giri and P. Barat

Physica A: Statistical Mechanics and its Applications, 2017, vol. 482, issue C, 262-275

Abstract: An attempt is made to understand the pattern of behaviour of the BSE Sensex by analysing the tick-by-tick Sensex data for the years 2006 to 2012 on yearly as well as cumulative basis using Principal Component Analysis (PCA) and its nonlinear variant Kernel Principal Component Analysis (KPCA). The latter technique ensures that the nonlinear character of the interactions present in the system gets captured in the analysis. The analysis is carried out by constructing vector spaces of varying dimensions. The size of the data set ranges from a minimum of 360,000 for one year to a maximum of 2,520,000 for seven years. In all cases the prices appear to be highly correlated and restricted to a very low dimensional subspace of the original vector space. An external perturbation is added to the system in the form of noise. It is observed that while standard PCA is unable to distinguish the behaviour of the noise-mixed data from that of the original, KPCA clearly identifies the effect of the noise. The exercise is extended in case of daily data of other stock markets and similar results are obtained.

Keywords: Financial markets; BSE Sensex; Time series; Principal component analysis; Correlated data (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:482:y:2017:i:c:p:262-275

DOI: 10.1016/j.physa.2017.04.026

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