Hierarchy, cluster, and time-stable information structure of correlations between international financial markets

Yumei Cai, Xiaomei Cui, Qianyun Huang and Jianqiang Sun

International Review of Economics & Finance, 2017, vol. 51, issue C, 562-573

Abstract: This paper investigates the correlations between 52 financial markets located in different countries or regions from July 2004 through June 2011. By using a correlation matrix time series and a participation frequency method based on the random matrix theory, we show that a time-stable information structure is contained in the correlations between global financial markets. We further find that the information structure is closely associated with global market and global geographical factors, and that each financial index's participation in the global market factor varies over time and presents dynamics. Two patterns, hierarchy and cluster effects, are found to be in the dynamics of the indices' participation in the global market factor. The cluster effect implies a more concentrated participation during the 2008 financial crisis.

Keywords: Correlation matrix; Random matrix theory; Portfolio; Information structure (search for similar items in EconPapers)
JEL-codes: C15 G11 G15 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:51:y:2017:i:c:p:562-573

DOI: 10.1016/j.iref.2017.07.024

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