Interplay between past market correlation structure changes and future volatility outbursts.

ABSTRACT: We report significant relations between past changes in the market correlation structure and future changes in the market volatility. This relation is made evident by using a measure of "correlation structure persistence" on correlation-based information filtering networks that quantifies the rate of change of the market dependence structure. We also measured changes in the correlation structure by means of a "metacorrelation" that measures a lagged correlation between correlation matrices computed over different time windows. Both methods show a deep interplay between past changes in correlation structure and future changes in volatility and we demonstrate they can anticipate market risk variations and this can be used to better forecast portfolio risk. Notably, these methods overcome the

SUBMITTER: Musmeci N 

PROVIDER: S-EPMC5114656 | biostudies-literature | 2016 Nov

REPOSITORIES: biostudies-literature