27 Feb

G. Buccheri, S. Marmi, R.N. Mantegna, Evolution of correlation structure of industrial indices of US equity markets, Physical Review E 88 (1), 012806

We investigate the dynamics of correlations present between pairs of industry indices of U.S. stocks traded in U.S. markets by studying correlation-based networks and spectral properties of the correlation matrix. The study is performed by using 49 industry index time series computed by K. French and E. Fama during the time period from July 1969 to December 2011, which spans more than 40 years. We show that the correlation between industry indices presents both a fast and a slow dynamics. The slow dynamics has a time scale longer than 5 years, showing that a different degree of diversification of the investment is possible in different periods of time. Moreover, we also detect a fast dynamics associated with exogenous or endogenous events. The fast time scale we use is a monthly time scale and the evaluation time period is a 3-month time period. By investigating the correlation dynamics monthly, we are able to detect two examples of fast variations in the first and second eigenvalue of the correlation matrix. The first occurs during the dot-com bubble (from March 1999 to April 2001) and the second occurs during the period of highest impact of the subprime crisis (from August 2008 to August 2009).