Cross-correlation in financial dynamicsJ. Shen and B. Zheng
Zhejiang University, Zhejiang Institute of Modern Physics - Hangzhou 310027, PRC
received 20 December 2008; accepted in final form 5 May 2009; published May 2009
published online 4 June 2009
To investigate the universal structure of interactions in financial dynamics, we analyze the cross-correlation matrix C of price returns of the Chinese stock market, in comparison with those of the American and Indian stock markets. As an important emerging market, the Chinese market exhibits much stronger correlations than the developed markets. In the Chinese market, the interactions between the stocks in a same business sector are weak, while extra interactions in unusual sectors are detected. Using a variation of the two-factor model, we simulate the interactions in financial markets.
89.65.Gh - Economics; econophysics, financial markets, business and management.
89.75.-k - Complex systems.
© EPLA 2009