Cross-Correlation Analysis in Financial Markets

Special Issue Editor

Special Issue Information

Dear Colleagues,

The joint behavior of cross-correlations in financial markets is a very relevant and challenging issue when considered in the context of constant dynamics in financial markets due to either normal market dynamics or certain events, regardless of whether they are motivated by economic factors or by others; recent examples include the COVID-19 pandemic and the conflict in Ukraine. Currently, the enormous availability of data and numerous methodologies available present a wide research field for exploring the relationship between financial assets. Moreover, the complexity of financial markets, which include many different assets (stocks, bonds, commodities, cryptocurrencies, ETF, etc.), opens the way for different types of approaches, which may be relevant for different agents, including investors, who are are able to obtain more information about the assets in which they have investments (or intend to invest). In the context of cross-correlations, this may be relevant to diversification and/or portfolio construction for companies looking for financing, because this information is relevant to the design of desired financial products, and for regulatory authorities, who, through monitoring the behavior of financial markets, may have relevant information on their evolution (such as, for example, overheating markets or bubbles and contagion). Hence, in this Special Issue, we will attempt to understand the cross-correlation of financial markets through any possible methodology.

Prof. Dr. Paulo Ferreira
Guest Editor

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Keywords

  • cross-correlations
  • financial markets
  • financial assets
  • diversification
  • portfolio
  • crisis

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Published Papers (2 papers)

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Research

19 pages, 339 KiB  
Article
How Do Stock Market Development and Competitiveness Affect Equity Risk Premium? Implications from World Economies
by Tarek Eldomiaty, Marina Apaydin, Mona Yusuf and Mohamed Rashwan
Int. J. Financial Stud. 2023, 11(1), 30; https://doi.org/10.3390/ijfs11010030 - 2 Feb 2023
Viewed by 2823
Abstract
Purpose: This paper examines the interrelatedness between countries’ stock market development and competitiveness and the equity risk premium (hereinafter, ERP). In addition, this paper examines the length of time that stock market development takes to have an impact of ERP. The [...] Read more.
Purpose: This paper examines the interrelatedness between countries’ stock market development and competitiveness and the equity risk premium (hereinafter, ERP). In addition, this paper examines the length of time that stock market development takes to have an impact of ERP. The results offer an empirical guide to stock market authorities about the robust factors that help reduce ERP, which, in turn, encourages raising equity financing. Design/methodology: The dataset includes 59 countries that are listed in the market potential index (hereinafter, MPI) covering the years 1996 to 2020. The MPI provides comprehensive macroeconomic factors that can be used for examining stock market competitiveness and, thus, its potential effects on ERP. Findings: The results of the robustness test show that (a) a negative and significant association exists between the turnover ratio of domestic shares to stocks traded and ERP, (b) the increases in stock market competitiveness are associated with increases in the number of listed companies, (c) lowly ranked countries in the MPI are associated with increasing ERP, and (d) in terms of the interaction between duration of stock market development and competitiveness, the relatively competitive stock markets take 2–6 years for stock market development indicators to have a significant effect on ERP. Originality: This paper offers two main contributions to the related literature. The first contribution is to offer a measure of stock market competitiveness using indicators of stock market development. Therefore, robust indicators of stock market development can be reached. The second contribution is to offer empirical results about the length of time (referred to in this paper as duration) required for the indicators of stock market development to have a favorable effect on ERP. Full article
(This article belongs to the Special Issue Cross-Correlation Analysis in Financial Markets)
15 pages, 330 KiB  
Article
Analyzing the Relationship between the Features of Direct Real Estate Assets and Their Corresponding Australian—REITs
by Xinyi Li, Yuhong Zhang, Xing Zhang and Runtang Gu
Int. J. Financial Stud. 2023, 11(1), 29; https://doi.org/10.3390/ijfs11010029 - 1 Feb 2023
Cited by 1 | Viewed by 2437
Abstract
This study investigated the relationship between a sector-specific Australian Real Estate Investment Trust (A-REITs) and the underlying property assets in its property portfolio. The existing studies have assessed the connectedness/correlation between the A-REITs market and a variety of other asset markets, including the [...] Read more.
This study investigated the relationship between a sector-specific Australian Real Estate Investment Trust (A-REITs) and the underlying property assets in its property portfolio. The existing studies have assessed the connectedness/correlation between the A-REITs market and a variety of other asset markets, including the overall stock, bond, and direct real estate markets. This study applied regression analysis methods and discovered that there exists a certain degree of linear correlation between the underlying property assets and the return of the subject A-REITs. The most significant variable is the occupancy of the offices. The higher the occupancy is, the better the dividend can be. Features of the A-REITs also affect the dividend outcomes, specifically, the total portfolio market value and the capitalization rate. This suggests that the annual valuation outcomes show a positive relation with the performance of the A-REITs. Full article
(This article belongs to the Special Issue Cross-Correlation Analysis in Financial Markets)
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