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The evolution of interdependence in world equity markets—Evidence from minimum spanning trees

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  • Coelho, Ricardo
  • Gilmore, Claire G.
  • Lucey, Brian
  • Richmond, Peter
  • Hutzler, Stefan

Abstract

The concept of a minimum spanning tree is used to study the process of market integration for a large group of national stock market indices. We show how the asset tree evolves over time and describe the dynamics of its normalized length, mean occupation layer, and single- and multiple-step linkage survival rates. Over the period studied, 1997–2006, the tree shows a tendency to become more compact. This implies that global equity markets are increasingly interrelated. The consequence for global investors is a potential reduction of the benefits of international portfolio diversification.

Suggested Citation

  • Coelho, Ricardo & Gilmore, Claire G. & Lucey, Brian & Richmond, Peter & Hutzler, Stefan, 2007. "The evolution of interdependence in world equity markets—Evidence from minimum spanning trees," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 376(C), pages 455-466.
    • Handle: RePEc:eee:phsmap:v:376:y:2007:i:c:p:455-466
    DOI: 10.1016/j.physa.2006.10.045
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    Keywords

    Econophysics; Minimal spanning trees;

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