Correlation and volatility in an Indian stock market: A random matrix approach

DOI10.1140/EPJB/E2007-00322-1MaRDI QIDQ978735zbMATH OpenOpenAlexFDO

Authors Varsha S. Kulkarni, Nivedita Deo

Publication date 25 June 2010

Published in The European Physical Journal B. Condensed Matter and Complex Systems (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/physics/0512169

Mathematics Subject Classification ID

Statistical methods; risk measures (91G70) Random matrices (algebraic aspects) (15B52) Applications of statistical and quantum mechanics to economics (econophysics) (91B80)

Abstract: We examine volatility of an Indian stock market in terms of aspects like participation, synchronization of stocks and quantification of volatility using the random matrix approach. Volatility pattern of the market is found using the BSE index for the three-year period 2000-2002. Random matrix analysis is carried out using daily returns of 70 stocks for several time windows of 85 days in 2001 to (i) do a brief comparative analysis with statistics of eigenvalues and eigenvectors of the matrix C of correlations between price fluctuations, in time regimes of different volatilities. While a bulk of eigenvalues falls within RMT bounds in all the time periods, we see that the largest (deviating) eigenvalue correlates well with the volatility of the index, the corresponding eigenvector clearly shows a shift in the distribution of its components from volatile to less volatile periods and verifies the qualitative association between participation and volatility (ii) observe that the Inverse participation ratio for the 'last' eigenvector is sensitive to market fluctuations (the two quantities are observed to anti correlate significantly) (iii) set up a variability index, V whose temporal evolution is found to be significantly correlated with the volatility of the overall market index.

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Cites work

• scientific article; zbMATH DE number 3787821 (Why is no real title available?)
• A model for the growth dynamics of economic organizations
• Introduction to Econophysics
• Power law distribution of the duration and magnitude of recessions in capitalist economies: Breakdown of scaling

Cited in

(5)

• Analyzing crisis in global financial indices
• The index cohesive effect on stock market correlations
• Random matrix theory analysis of cross-correlations in the US stock market: evidence from Pearson's correlation coefficient and detrended cross-correlation coefficient
• Random matrix application to correlations amongst the volatility of assets
• Speed of price adjustment in Indian stock market: a paradox

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