A Study for the Analysis of Group correlation in Korean Financial Markets

Abstract

We find the structure of the correlation in the Korean financial market. And we investigate a noticeable agreement between the theoretical prediction (the correlation matrix is random) and empirical data concerning the density of eigenvalues associated to the time series of the different stocks of the KOSPI and KOSDAQ. We study daily correlations respecting price fluctuations of 629 KOSPI and 650 KOSDAQ stock entities for the 5-year time period from 2006 to 2010. The main subject is to analyze the group correlation by the market-wide effect using the random matrix theory and the network-based approach. We find stock entities that involved the each same business sectors. And we verify the structure of group correlation by applying a network-based approach. The KOSPI had dense correlation for overall stock entities besides group correlation. The KOSDAQ had less correlation than the KOSPI for two contents.