The Index cohesive effect on stock market correlations

European Physical Journal B

Volumn 72, Issue 4, 2009, Pages 657-669

  Shapira, Y ^a   Kenett, D Y ^a   Ben Jacob, E ^a  

^a TEL AVIV UNIVERSITY   (Israel)

Author keywords

[No Author keywords available]

Indexed keywords

ADHESIVE EFFECT; COHESIVE FORCE; CORRELATION MATRIX; DATA SETS; EMPIRICAL EXAMINATION; FINANCIAL SYSTEM; MATURE MARKETS; NEW YORK STOCK EXCHANGE; PRINCIPAL COMPONENT SPACE; STOCK MARKET; STOCK RETURNS; STRONG CORRELATION; TEL AVIV STOCK EXCHANGES;

COMMERCE;

EID: 72449137579     PISSN: 14346028     EISSN: 14346036     Source Type: Journal    
DOI: 10.1140/epjb/e2009-00384-y     Document Type: Article

References (41)

1. R.N. Mantegna, H.E. Stanley, An Introduction to Econophysics: Correlations and Complexity in Finance (Cambridge University Press, Cambridge, UK, 2000)
2. S. Kodba M. Perc M. Marhl 2005 Eur. J. Phys. 26 205 10.1088/0143-0807/26/ 1/021 (Pubitemid 40168320)
3. J.D. Noh 2000 Phys. Rev. E 61 5981 10.1103/PhysRevE.61.5981 1746339 2000PhRvE..61.5981N
4. A. Utsugi K. Ino M. Oshikawa 2004 Phys. Rev. E 70 026110 10.1103/PhysRevE.70.026110 2004PhRvE..70b6110U
5. R.N. Mantegna 1999 Eur. Phys. J. B 11 193 10.1007/s100510050929 1999EPJB⋯11..193M
6. A. Garas P. Argyrakis 2007 Physica A 380 399 10.1016/j.physa.2007.02.097 2007PhyA..380..399G (Pubitemid 46694241)
7. W.S. Jung S. Chae J.S. Yang H.T. Moon 2006 Physica A 361 263 10.1016/j.physa.2005.06.081 2006PhyA..361..263J
8. L. Laloux P. Cizeau J.P. Bouchaud M. Potters 1999 Phys. Rev. Lett. 83 1467 10.1103/PhysRevLett.83.1467 1999PhRvL..83.1467L
9. C. Coronnello M. Tumminello F. Lillo S. Micciche R.N. Mantegna 2005 Acta Physica Polonica B 36 2653 2188087 2005AcPPB..36.2653C
10. V. Plerou P. Gopikrishnan B. Rosenow L.A.N. Amaral T. Guhr H.E. Stanley 2002 Phys. Rev. E 65 066126 10.1103/PhysRevE.65.066126 2002PhRvE..65f6126P
11. P. Gopikrishnan V. Plerou Y. Liu L.A.N. Amaral X. Gabaix H.E. Stanley 2000 Physica A 287 362 10.1016/S0378-4371(00)00375-7 1802413 2000PhyA..287..362G (Pubitemid 32034780)
12. S. Pafka I. Kondor 2004 Physica A 343 623 10.1016/j.physa.2004.05.079 2004PhyA..343..623P
13. M. Perc 2007 Phys. Rev. E 75 022101 10.1103/PhysRevE.75.022101 2007PhRvE..75b2101P (Pubitemid 46203550)
14. M.R. Reinganum 1981 The Journal of Finance 36 313 10.2307/2327013
15. F. Black, M.C. Jensen, M. Scholes, Studies in the Theory of Capital Markets, edited by M. Jensen (New York: Praeger Publishers, 1972), pp. 79-121
16. J. Lintner 1965 Rev. Econ. Stat. 47 13 10.2307/1924119
17. J.P. Bouchaud 2008 Nature 455 1181 10.1038/4551181a 2008Natur.455.1181B
18. I. Baruchi V.L. Towle E. Ben-Jacob 2005 Complexity 10 38 10.1002/cplx.20065 2281035 (Pubitemid 40350854)
19. I. Baruchi E. Ben-Jacob 2004 Neuroinformatics 2 333 10.1385/NI:2:3:333 (Pubitemid 43291785)
20. I. Baruchi, D. Grossman, V. Volman, M. Shein, J. Hunter, V.L. Towle, E. Ben-Jacob, CHAOS 16, ISSN015112 (2006)
21. A. Madi I. Hecht S. Bransburg-Zabary Y. Merbl M. Zucker-Toledano F.J. Quintana A.J. Tauber I.R. Cohen E. Ben-Jacob 2009 PNAS 34 14484 10.1073/pnas.0901528106 2009PNAS..10614484M
22. A. Madi Y. Friedman D. Roth T. Regev S. Bransburg-Zabary E. Ben-Jacob 2008 PLoS ONE 3 e2708 10.1371/journal.pone.0002708
23. Y. Chou, Statistical Analysis (Holt International, ISBN 0030894220, Sect. 17.9, 1975)
24. E.P. Wigner P.A.M. Dirac 1951 Proceedings of the Cambridge Philosophical Society 47 790 0044.44203 10.1017/S0305004100027237
25. F.J. Dyson 1962 J. Math. Phys. 3 140 10.1063/1.1703773 143556 1962JMP⋯..3..140D
26. M.L. Mehta, Random matrices (Academic press, 2002)
27. www.finance.yahoo.com
28. www.tase.co.il
29. Looking at the TA dataset more specifically, combining knowledge from other sources, we encounter a problem processing the data. For example, we observe a very strong correlation between two companies IDB Holding Corporation?, and ?Discount Investment Corporation? (IDC). Using public records about these two companies, we find that IDB owns 74.06% of the shares of IDC, and that the market value of these two companies is roughly the same (9 and 10 billions NIS, respectively). Due to the fact that the trade in the market is continuous, the traders are aware, at each moment, of the price of both companies and the relationship between them, so they see to it that these two prices match each other at all time. It is important to distinguish between a business similarity, which is the result of similar objectives or areas of interest, and between financial dependencies, which are the result of control and ownership of assets. We expect that if the majority of the assets of one company are the shares of a second company, any change in the second company will be immediately reflected in the first. Thus, we decided to exclude from our TA dataset five holding companies with more than 50% of their assets listed as stocks of a second company. For such companies, the observed high correlation between the two companies is trivial and does not produce any new meaningful information. These holding companies were excluded from our analysis, while the daughter companies were left in the dataset. The whole issue of the correlations between a holding company and its subsidiaries demands further research. Due to technical reasons, this screening of holding companies was not performed for the NYSE data, for the S&P 500 and DJIA datasets.
30. R. Dubes A. Jain 1980 Adva. Comput. 19 113
31. B. Chor T. Tuller 2007 J. Computat. Biology 14 817 10.1089/cmb.2007.R018 2347294 (Pubitemid 47221819)
32. I. Baruchi V. Volman N. Raichman M. Shein E. Ben-Jacob 2008 European Journal of Neuroscience 28 1825 10.1111/j.1460-9568.2008.06487.x
33. R. Varshavsky A. Gottlieb D. Horn M. Linial 2007 Bioinformatics 23 3343 10.1093/bioinformatics/btm528 (Pubitemid 350238887)
34. R. Varshavsky A. Gottlieb M. Linial D. Horn 2006 Bioinformatics 22 e507 10.1093/bioinformatics/btl214 (Pubitemid 44288322)
35. K. Baba R. Shibata M. Sibuya 2004 Australia and New Zealand J. Stat. 46 657 1061.62086 10.1111/j.1467-842X.2004.00360.x 2115961
36. O. Kwon J.S. Yang 2008 Physica A 387 2851 10.1016/j.physa.2008.01.007 2008PhyA..387.2851K
37. F. Lilo R.N. Mangegna 2000 Eur. Phys. J. B 15 603 10.1007/s100510051162 2000EPJB⋯15..603L
38. C. Borghesi M. Marsili S. Micciche 2007 Phys. Rev. E 76 026104 10.1103/PhysRevE.76.026104 2365540 2007PhRvE..76b6104B (Pubitemid 47258005)
39. P. Gopikrishnan B. Rosenow V. Plerou H.E. Stanley 2001 Phys. Rev. E 64 035106 10.1103/PhysRevE.64.035106 2001PhRvE..64c5106G
40. R.K. Pan S. Sinha 2007 Phys. Rev. E 76 046116 10.1103/PhysRevE.76.046116 2007PhRvE..76d6116P (Pubitemid 350023331)
41. M.J. Mauboussin 2005 Journal of Applied Corporate Finance 14 47 10.1111/j.1745-6622.2002.tb00448.x