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Article Dans Une Revue Physica A: Statistical Mechanics and its Applications Année : 2019

Emergence of correlations between securities at short time scales

Sebastien Valeyre
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Résumé

The correlation matrix is the key element in optimal portfolio allocation and risk management. In particular, the eigenvectors of the correlation matrix corresponding to large eigenvalues can be used to identify the market mode, sectors and style factors. We investigate how these eigenvalues depend on the time scale of securities returns in the U.S. market. For this purpose, one-minute returns of the largest 533 U.S. stocks are aggregated at different time scales and used to estimate the correlation matrix and its spectral properties. We propose a simple lead-lag factor model to capture and reproduce the observed timescale dependence of eigenvalues. We reveal the emergence of several dominant eigenvalues as the time scale increases. This important finding evidences that the underlying economic and financial mechanisms determining the correlation structure of securities depend as well on time scales.
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Dates et versions

hal-02343888 , version 1 (03-11-2019)

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Sebastien Valeyre, Denis S Grebenkov, Sofiane Aboura. Emergence of correlations between securities at short time scales. Physica A: Statistical Mechanics and its Applications, 2019, 526, pp.121026. ⟨10.1016/j.physa.2019.04.262⟩. ⟨hal-02343888⟩
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