Evolution of Correlation Structure of Industrial Indices of US Equity Markets

8 Pages Posted: 22 Jun 2013

See all articles by Giuseppe Buccheri

Giuseppe Buccheri

Scuola Normale Superiore

Stefano Marmi

Scuola Normale Superiore

Rosario N. Mantegna

University of Palermo

Date Written: June 20, 2013

Abstract

We investigate the dynamics of correlations present between pairs of industry indices of US stocks traded in US markets by studying correlation based networks and spectral properties of the correlation matrix. The study is performed by using 49 industry index time series computed by K. French and E. Fama during the time period from July 1969 to December 2011 that is spanning more than 40 years. We show that the correlation between industry indices presents both a fast and a slow dynamics. The slow dynamics has a time scale longer than five years showing that a different degree of diversification of the investment is possible in different periods of time. On top to this slow dynamics, we also detect a fast dynamics associated with exogenous or endogenous events. The fast time scale we use is a monthly time scale and the evaluation time period is a 3 month time period. By investigating the correlation dynamics monthly, we are able to detect two examples of fast variations in the first and second eigenvalue of the correlation matrix. The first occurs during the dot-com bubble (from March 1999 to April 2001) and the second occurs during the period of highest impact of the subprime crisis (from August 2008 to August 2009).

Suggested Citation

Buccheri, Giuseppe and Marmi, Stefano and Mantegna, Rosario Nunzio, Evolution of Correlation Structure of Industrial Indices of US Equity Markets (June 20, 2013). Available at SSRN: https://ssrn.com/abstract=2282385 or http://dx.doi.org/10.2139/ssrn.2282385

Giuseppe Buccheri

Scuola Normale Superiore ( email )

Piazza dei Cavalieri, 7
Pisa, 56126
Italy
+39 3341046378 (Phone)

Stefano Marmi

Scuola Normale Superiore ( email )

Piazza dei Cavalieri, 7
Pisa, 56126
Italy
+39050509064 (Phone)
+39050563513 (Fax)

HOME PAGE: http://homepage.sns.it/marmi/

Rosario Nunzio Mantegna (Contact Author)

University of Palermo ( email )

Dipartimento di Fisica e Chimica
Viale delle Scienze, Edificio 18
Palermo, PA I-90128
Italy
+3909123899074 (Phone)
+3909123860815 (Fax)

HOME PAGE: http://www.unipa.it/persone/docenti/m/rosario.mantegna

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