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Conditioning on a Volatility Proxy Compresses the Apparent Timescale of Collective Market Correlation
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Conditioning on a Volatility Proxy Compresses the Apparent Timescale of Collective Market Correlation
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Paper
Conditioning on a Volatility Proxy Compresses the Apparent Timescale of Collective Market Correlation
2026
Overview
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 \\(_1=_/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 \\(\\)BIC\\(=109\\). On the decomposition sample, an informational residual of \\((VIX)\\) alone retains most of that gain (\\(\\)BIC\\(=78.6\\)), whereas a mechanical VIX proxy alone does not improve the fit. Autocorrelation-matched placebo fields fail (\\(\\)BIC\\(_=2.7\\)), disjoint weekly reconstructions still favor the field-coupled model (\\(\\)BIC\\(=140\\)--\\(151\\)), and six anchored chronological holdouts preserve the out-of-sample advantage. Quiet-regime and field-stripped residual autocorrelation controls show the same collapse of persistence. Stronger hidden-variable extensions remain only partially supported. Within the tested stochastic class, conditioning on the observed VIX proxy absorbs most of the apparent slow dynamics.
Publisher
Cornell University Library, arXiv.org
Subject
