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New: How Lead-Lag Correlations Affect the Intraday Pattern of Collective Stock Dynamics

Tue, 15 Sep 2015 22:25:34 GMT

The degree of correlation among stock returns affects the possibility to diversify the risk of investment, and it plays a major role in financial spillover. During the last decade, the increasing level of correlation observed in financial markets has become a threat to market stability. Here, we analyze high frequency data of stock returns traded at the New York Stock Exchange in the periods 2001-03 and 2011-13. In each period we uncouple the factors contributing to the intraday pattern of synchronous correlations, including volatility, autocorrelations and lagged cross-correlations among assets. We find that intraday market dynamics have changed considerably in the last decade, and relate our findings to the dynamics of an underlying network of lead-lag relationships among equities. In particular, while in 2001-03 lagged cross-correlations contributed significantly to the intraday correlation profile, the increased degree of synchronous correlation observed in the period 2011-13 can ...

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