Correlation analysis of the Korean stock market: Revisited to consider the influence of foreign exchange rate

• Published in: Physica A Vol. 491; pp. 852 - 868
• Main Authors: Jo, Sang Kyun, Kim, Min Jae, Lim, Kyuseong, Kim, Soo Yong
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.02.2018
• Subjects: Foreign exchange rate; Minimum spanning tree; Random matrix theory; Foreign exchange rate; Random matrix theory; Minimum spanning tree
• ISSN: 0378-4371; 1873-2119
• DOI: 10.1016/j.physa.2017.09.071

We investigated the effect of foreign exchange rate in a correlation analysis of the Korean stock market using both random matrix theory and minimum spanning tree. We collected data sets which were divided into two types of stock price, the original stock price in Korean Won and the price converted into US dollars at contemporary foreign exchange rates. Comparing the random matrix theory based on the two different prices, a few particular sectors exhibited substantial differences while other sectors changed little. The particular sectors were closely related to economic circumstances and the influence of foreign financial markets during that period. The method introduced in this paper offers a way to pinpoint the effect of exchange rate on an emerging stock market. •We examined the effect of foreign exchange rate in a correlation analysis of the Korean stock market.•We collected and analyzed two types of stock prices using both random matrix theory and network analysis.•Few particular industrial sectors exhibited substantial differences while other sectors showed small change.•The method introduced in this paper suggest a way to measure the effect of exchange rate on an emerging stock market.