dorsal/arxiv
View SchemaCorrelation Structures and Regime Shifts in Nordic Stock Markets
| Authors | Maksym A. Girnyk |
|---|---|
| Categories | |
| ArXiv ID | 2601.06090vv1 |
| URL | https://arxiv.org/abs/2601.06090 |
| License | http://arxiv.org/licenses/nonexclusive-distrib/1.0/ |
Abstract
Financial markets are complex adaptive systems characterized by collective behavior and abrupt regime shifts, particularly during crises. This paper studies time-varying dependencies in Nordic equity markets and examines whether correlation-eigenstructure dynamics can be exploited for regime-aware portfolio construction. Using two decades of daily data for the OMXS30, OMXC20, and OMXH25 universes, pronounced regime dependence in rolling correlation matrices is documented: crisis episodes are characterized by sharp increases in the leading eigenvalue and counter-cyclical behavior in the second eigenvalue. Eigenportfolio regressions further support a market-factor interpretation of the dominant eigenmode. Building on these findings, an adaptive portfolio allocation framework is proposed, combining correlation-matrix cleaning, an eigenvalue-ratio crisis indicator and long-only minimum-variance optimization with constraints that bound exposures to dominant eigenmodes. Backtesting results indicate improved downside protection and risk-adjusted performance during stress regimes, while remaining competitive with state-of-the-art benchmarks in tranquil periods.
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"abstract": "Financial markets are complex adaptive systems characterized by collective behavior and abrupt regime shifts, particularly during crises. This paper studies time-varying dependencies in Nordic equity markets and examines whether correlation-eigenstructure dynamics can be exploited for regime-aware portfolio construction. Using two decades of daily data for the OMXS30, OMXC20, and OMXH25 universes, pronounced regime dependence in rolling correlation matrices is documented: crisis episodes are characterized by sharp increases in the leading eigenvalue and counter-cyclical behavior in the second eigenvalue. Eigenportfolio regressions further support a market-factor interpretation of the dominant eigenmode. Building on these findings, an adaptive portfolio allocation framework is proposed, combining correlation-matrix cleaning, an eigenvalue-ratio crisis indicator and long-only minimum-variance optimization with constraints that bound exposures to dominant eigenmodes. Backtesting results indicate improved downside protection and risk-adjusted performance during stress regimes, while remaining competitive with state-of-the-art benchmarks in tranquil periods.",
"arxiv_id": "2601.06090",
"authors": [
"Maksym A. Girnyk"
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"license": "http://arxiv.org/licenses/nonexclusive-distrib/1.0/",
"title": "Correlation Structures and Regime Shifts in Nordic Stock Markets",
"url": "https://arxiv.org/abs/2601.06090",
"version": "v1"
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