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Multidimensional minimal spanning tree: The Dow Jones case

  • Brida, Juan Gabriel
  • Risso, Wiston Adrián

This paper introduces a new methodology in order to construct Minimal Spanning Trees (MST) and Hierarchical Trees (HT) using the information provided by more than one variable. In fact, the Symbolic Time Series Analysis (STSA) approach is applied to the Dow Jones companies using information not only from asset returns but also for trading volume. The US stock market structure is obtained, showing eight clusters of companies and General Electric as a central node in the tree. We use different partitions showing that the results do not depend on the particular partition. In addition, we apply Monte Carlo simulations suggesting that the tree is not the result of random connections.

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File URL: http://www.sciencedirect.com/science/article/pii/S0378437108004299
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Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

Volume (Year): 387 (2008)
Issue (Month): 21 ()
Pages: 5205-5210

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Handle: RePEc:eee:phsmap:v:387:y:2008:i:21:p:5205-5210
Contact details of provider: Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

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  1. Karpoff, Jonathan M., 1987. "The Relation between Price Changes and Trading Volume: A Survey," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(01), pages 109-126, March.
  2. Halinen, Aino & Törnroos, Jan-Åke, 1998. "The role of embeddedness in the evolution of business networks," Scandinavian Journal of Management, Elsevier, vol. 14(3), pages 187-205, March.
  3. R. Mantegna, 1999. "Hierarchical structure in financial markets," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 11(1), pages 193-197, September.
  4. G. Bonanno & G. Caldarelli & F. Lillo & S. Micciche` & N. Vandewalle & R. N. Mantegna, 2004. "Networks of equities in financial markets," Papers cond-mat/0401300, arXiv.org.
  5. Giovanni Bonanno & Fabrizio Lillo & Rosario N. Mantegna, 2001. "Levels of complexity in financial markets," Papers cond-mat/0104369, arXiv.org.
  6. Westerfield, Randolph, 1977. "The Distribution of Common Stock Price Changes: An Application of Transactions Time and Subordinated Stochastic Models," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(05), pages 743-765, December.
  7. Morgan, I G, 1976. "Stock Prices and Heteroscedasticity," The Journal of Business, University of Chicago Press, vol. 49(4), pages 496-508, October.
  8. Clark, Peter K, 1973. "A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices," Econometrica, Econometric Society, vol. 41(1), pages 135-55, January.
  9. Rogalski, Richard J, 1978. "The Dependence of Prices and Volume," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 268-74, May.
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