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Dynamics of Correlation Structure in Stock Market
Department of Mathematical Sciences, Faculty of Science, Universiti Teknologi Malaysia, 81310 UTM Skudai, Johor Bahru, Johor Darul Takzim, Malaysia
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Received: 24 September 2013; in revised form: 19 December 2013 / Accepted: 24 December 2013 / Published: 6 January 2014
Abstract: In this paper a correction factor for Jennrich’s statistic is introduced in order to be able not only to test the stability of correlation structure, but also to identify the time windows where the instability occurs. If Jennrich’s statistic is only to test the stability of correlation structure along predetermined non-overlapping time windows, the corrected statistic provides us with the history of correlation structure dynamics from time window to time window. A graphical representation will be provided to visualize that history. This information is necessary to make further analysis about, for example, the change of topological properties of minimal spanning tree. An example using NYSE data will illustrate its advantages.
Keywords: Mahalanobis square distance; multivariate normal distribution; network topology; Pearson correlation coefficient; random matrix
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Djauhari, M.A.; Gan, S.L. Dynamics of Correlation Structure in Stock Market. Entropy 2014, 16, 455-470.
Djauhari MA, Gan SL. Dynamics of Correlation Structure in Stock Market. Entropy. 2014; 16(1):455-470.
Djauhari, Maman A.; Gan, Siew L. 2014. "Dynamics of Correlation Structure in Stock Market." Entropy 16, no. 1: 455-470.