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The Evolution of Interdependence in World Equity Markets - Evidence from Minimum Spanning Trees

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  • Ricardo Coehlo
  • Claire Gilmore
  • Brian M. Lucey

Abstract

The minimum spanning tree concept from physics is used to study the process of market integration for a large group of national stock market indices. We show how the tree grows over time and describe the dynamics of its various characteristics. Over the period studied, 1997-2006, the tree shows a tendency to become less bushy. 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.

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Bibliographic Info

Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp142.

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Date of creation: 25 May 2006
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Handle: RePEc:iis:dispap:iiisdp142

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Keywords: Econophysics; minimal spanning trees;

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Cited by:
  1. Leonidas Sandoval Junior & Italo De Paula Franca, 2011. "Correlation of financial markets in times of crisis," Papers 1102.1339, arXiv.org, revised Mar 2011.
  2. Leonidas Sandoval Junior, 2011. "A Map of the Brazilian Stock Market," Papers 1107.4146, arXiv.org, revised Mar 2013.
  3. Kantar, Ersin & Keskin, Mustafa, 2013. "The relationships between electricity consumption and GDP in Asian countries, using hierarchical structure methods," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(22), pages 5678-5684.
  4. Jang, Wooseok & Lee, Junghoon & Chang, Woojin, 2011. "Currency crises and the evolution of foreign exchange market: Evidence from minimum spanning tree," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(4), pages 707-718.
  5. Sandoval, Leonidas Junior, 2013. "To lag or not to lag? How to compare indices of stock markets that operate at different times," Insper Working Papers wpe_319, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  6. Sandoval, Leonidas, 2012. "Pruning a minimum spanning tree," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(8), pages 2678-2711.
  7. Lee, Junghoon & Youn, Janghyuk & Chang, Woojin, 2012. "Intraday volatility and network topological properties in the Korean stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(4), pages 1354-1360.
  8. Theophilos Papadimitriou & Periklis Gogas & Benjamin M. Tabak, 2013. "Complex Networks and Banking Systems Supervision," Working Papers Series 306, Central Bank of Brazil, Research Department.
  9. Khaldoun Khashanah & Linyan Miao, 2011. "Dynamic structure of the US financial systems," Studies in Economics and Finance, Emerald Group Publishing, vol. 28(4), pages 321-339, October.
  10. Cheong, Siew Ann & Fornia, Robert Paulo & Lee, Gladys Hui Ting & Kok, Jun Liang & Yim, Woei Shyr & Xu, Danny Yuan & Zhang, Yiting, 2012. "The Japanese economy in crises: A time series segmentation study," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 6(5), pages 1-81.
  11. B. Goswami & G. Ambika & N. Marwan & J. Kurths, 2011. "On interrelations of recurrences and connectivity trends between stock indices," Papers 1103.5189, arXiv.org.
  12. Goswami, B. & Ambika, G. & Marwan, N. & Kurths, J., 2012. "On interrelations of recurrences and connectivity trends between stock indices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(18), pages 4364-4376.
  13. Trancoso, Tiago, 2014. "Emerging markets in the global economic network: Real(ly) decoupling?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 395(C), pages 499-510.
  14. Tabak, Benjamin M. & Serra, Thiago R. & Cajueiro, Daniel O., 2009. "The expectation hypothesis of interest rates and network theory: The case of Brazil," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(7), pages 1137-1149.
  15. Tabak, Benjamin M. & Serra, Thiago R. & Cajueiro, Daniel O., 2010. "Topological properties of stock market networks: The case of Brazil," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(16), pages 3240-3249.
  16. Cheong, Siew Ann & Fornia, Robert Paulo & Lee, Gladys Hui Ting & Kok, Jun Liang & Yim, Woei Shyr & Xu, Danny Yuan & Zhang, Yiting, 2011. "The Japanese economy in crises: A time series segmentation study," Economics Discussion Papers 2011-24, Kiel Institute for the World Economy.
  17. Leonidas Sandoval Junior, 2011. "Pruning a Minimum Spanning Tree," Papers 1109.0642, arXiv.org.
  18. Sandoval, Leonidas, 2014. "To lag or not to lag? How to compare indices of stock markets that operate on different times," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 403(C), pages 227-243.
  19. Leonidas Sandoval Junior, 2011. "Cluster formation and evolution in networks of financial market indices," Papers 1111.5069, arXiv.org.
  20. Tabak, Benjamin M. & Luduvice, André Victor D. & Cajueiro, Daniel O., 2011. "Modeling default probabilities: The case of Brazil," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(4), pages 513-534, October.
  21. Sandoval, Leonidas & Franca, Italo De Paula, 2012. "Correlation of financial markets in times of crisis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(1), pages 187-208.

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