Dependence structure of the Korean stock market in high frequency data

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This paper analyzes the evolution of the dependence structure for various time window intervals, known as Epps effect, using the Trade and Quote data of 663 actively traded stocks in Korean stock market. It is found that the random matrix theory analysis could not represent the dependence structure of the stock market in the microstructure regime. The Cook-Johnson copula is introduced as a parsimonious alternative method to handle this problem, and the existence of the Epps effect is confirmed for the 663 stocks using high frequency data. It was also found that large capitalization companies tend to have a stronger dependence structure, except for the largest capitalization group, since the phenomenon of price level resistance leads to the weak dependence structure in the largest capitalization group. In addition, grouping the industry as a sub-portfolio is an appropriate approach for hour interval traders, whereas this approach is not a strategy recommended for high frequency traders. Crown Copyright (C) 2010 Published by Elsevier B.V. All rights reserved.
Publisher
ELSEVIER SCIENCE BV
Issue Date
2011-03
Language
English
Article Type
Article
Keywords

ARCHIMEDEAN COPULAS; RETURNS; FUND

Citation

PHYSICA A-STATISTICAL MECHANICS AND ITS APPLICATIONS, v.390, no.5, pp.891 - 901

ISSN
0378-4371
DOI
10.1016/j.physa.2010.11.026
URI
http://hdl.handle.net/10203/100243
Appears in Collection
PH-Journal Papers(저널논문)
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