Life time of correlation between stocks prices on established and emerging markets

Authors: Andrzej Buda

A. Buda, A. Jarynowski,Life-time Of Correlation And Its Application (volume 1), Wydawnictwo Niezalezne, Wroclaw 2010, ISBN 978-83915272-9-0

arXiv: 1105.6272v1 - DOI (q-fin.GN)

17 pages, 9 figures, 1 table; presented at FENS conference in Wroclaw 2007 and Rzeszow 208; chapter in book: "Life-time Of Correlation And Its Application (volume 1)"

License: NONEXCLUSIVE-DISTRIB 1.0

Abstract: The correlation coefficient between stocks depends on price history and includes information on hierarchical structure in financial markets. It is useful for portfolio selection and estimation of risk. I introduce the Life Time of Correlation between stocks prices to know how far we should investigate the price history to obtain the optimal durability of correlation. I carry out my research on emerging (Poland) and established markets (in the USA, Great Britain and Germany). Other methods, including the Minimum Spanning Trees, tree half-life, decomposition of correlations and the Epps effect are also discussed.

Submitted to arXiv on 31 May. 2011

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