Issue
EPL
Volume 86, Number 4, May 2009
Article Number 48005
Number of page(s) 6
Section Interdisciplinary Physics and Related Areas of Science and Technology
DOI http://dx.doi.org/10.1209/0295-5075/86/48005
Published online 04 June 2009
EPL, 86 (2009) 48005
DOI: 10.1209/0295-5075/86/48005

Cross-correlation in financial dynamics

J. Shen and B. Zheng

Zhejiang University, Zhejiang Institute of Modern Physics - Hangzhou 310027, PRC

zheng@zimp.zju.edu.cn

received 20 December 2008; accepted in final form 5 May 2009; published May 2009
published online 4 June 2009

Abstract
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.

PACS
89.65.Gh - Economics; econophysics, financial markets, business and management.
89.75.-k - Complex systems.

© EPLA 2009