Conditioning on a Volatility Proxy Compresses the Apparent Timescale of Collective Market Correlation
We address the attribution problem for apparent slow collective dynamics: is the observed persistence intrinsic, or inherited from a persistent driver? For the leading eigenvalue fraction $ψ_1=λ_{\max}/N$ of S\&P 500 60-day rolling correlation matrices ($237$ stocks, 2004--2023), a VIX-coupled Ornstein--Uhlenbeck model reduces the effective relaxation time from $298$ to $61$ trading days and improves the fit over bare mean reversion by $Δ$BIC$=109$. On the decomposition sample, an informational residual of $\log(\mathrm{VIX})$ alone retains most of that gain ($Δ$BIC$=78.6$), whereas a mechanical VIX proxy alone does not improve the fit. Autocorrelation-matched placebo fields fail ($Δ$BIC$...
| Authors | Yuda Bi, Vince D Calhoun |
|---|---|
| Primary category | q-fin.CP |
| Published | 14 March 2026 |
| Last updated at source | 14 March 2026 |
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