Life time of correlation between stocks prices on established and emerging markets
The correlation coefficient between stocks depends on price history and includes information on hierarchical structure in financial markets. It is useful for portfolio selection and estimation of risk. I introduce the Life Time of Correlation between stocks prices to know how far we should investigate the price history to obtain the optimal durability of correlation. I carry out my research on emerging (Poland) and established markets (in the USA, Great Britain and Germany). Other methods, including the Minimum Spanning Trees, tree half-life, decomposition of correlations and the Epps effect are also discussed.
Published in A. Buda, A. Jarynowski,Life-time Of Correlation And Its Application (volume 1), Wydawnictwo Niezalezne, Wroclaw 2010, ISBN 978-83915272-9-0