Browsing by Subject "Risk diversification"
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Item Open Access Analysis of cross-correlations between financial markets after the 2008 crisis(Elsevier BV, 2013) Sensoy, A.; Yuksel, S.; Erturk, M.We analyze the cross-correlation matrix C of the index returns of the main financial markets after the 2008 crisis using methods of random matrix theory. We test the eigenvalues of C for universal properties of random matrices and find that the majority of the cross-correlation coefficients arise from randomness. We show that the eigenvector of the largest deviating eigenvalue of C represents a global market itself. We reveal that high volatility of financial markets is observed at the same times with high correlations between them which lowers the risk diversification potential even if one constructs a widely internationally diversified portfolio of stocks. We identify and compare the connection and cluster structure of markets before and after the crisis using minimal spanning and ultrametric hierarchical trees. We find that after the crisis, the co-movement degree of the markets increases. We also highlight the key financial markets of pre and post crisis using main centrality measures and analyze the changes. We repeat the study using rank correlation and compare the differences. Further implications are discussed.