Conditioning on a Volatility Proxy Compresses the Apparent Timescale of Collective Market Correlation

Yuda Bi and Vince D Calhoun

Papers from arXiv.org

Abstract: We address the attribution problem for apparent slow collective dynamics: is the observed persistence intrinsic, or inherited from a persistent driver? For the leading eigenvalue fraction $\psi_1=\lambda_{\max}/N$ of S\&P 500 60-day rolling correlation matrices ($237$ stocks, 2004--2023), a VIX-coupled Ornstein--Uhlenbeck model reduces the effective relaxation time from $298$ to $61$ trading days and improves the fit over bare mean reversion by $\Delta$BIC$=109$. On the decomposition sample, an informational residual of $\log(\mathrm{VIX})$ alone retains most of that gain ($\Delta$BIC$=78.6$), whereas a mechanical VIX proxy alone does not improve the fit. Autocorrelation-matched placebo fields fail ($\Delta$BIC$_{\max}=2.7$), disjoint weekly reconstructions still favor the field-coupled model ($\Delta$BIC$=140$--$151$), and six anchored chronological holdouts preserve the out-of-sample advantage. Quiet-regime and field-stripped residual autocorrelation controls show the same collapse of persistence. Stronger hidden-variable extensions remain only partially supported. Within the tested stochastic class, conditioning on the observed VIX proxy absorbs most of the apparent slow dynamics.

Date: 2026-03
References: Add references at CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2603.14072 Latest version (application/pdf)

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:arx:papers:2603.14072

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().