A model for correlations in stock markets
Jae Dong Noh
Abstract
We propose a group model for correlations in stock markets. In the group model the markets are composed of several groups, within which the stock price fluctuations are correlated. The spectral properties of empirical correlation matrices reported in [Phys. Rev. Lett. 83, 1467 (1999); Phys. Rev. Lett. 83, 1471 (1999.)] are well understood from the model. It provides the connection between the spectral properties of the empirical correlation matrix and the structure of correlations in stock markets.
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