IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Stock market networks: The dynamic conditional correlation approach

  • Lyócsa, Štefan
  • Výrost, Tomáš
  • Baumöhl, Eduard

We demonstrate the economic relevance of minimum spanning trees (MSTs) constructed from dynamic conditional correlations (DCC) for a sample of S&P 100 constituents. An empirical comparison of MST properties shows that using the standard approach of rolling (or sliding-window) correlations yields trees that are more robust, have higher densities and exhibit higher industry clustering than MSTs based on DCC. Our results suggest that these properties are achieved at the expense of the smoothing of market dynamics, which is better preserved by DCC. The DCC approach offers a new perspective for the analysis of complex systems such as stock markets.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S0378437112002907
Download Restriction: Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

Volume (Year): 391 (2012)
Issue (Month): 16 ()
Pages: 4147-4158

as
in new window

Handle: RePEc:eee:phsmap:v:391:y:2012:i:16:p:4147-4158
Contact details of provider: Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. 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.
  2. Lorenzo Cappiello & Robert F. Engle & Kevin Sheppard, 2006. "Asymmetric Dynamics in the Correlations of Global Equity and Bond Returns," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 4(4), pages 537-572.
  3. G. Bonanno & F. Lillo & R. N. Mantegna, 2001. "High-frequency cross-correlation in a set of stocks," Quantitative Finance, Taylor & Francis Journals, vol. 1(1), pages 96-104.
  4. Sanjeev Bhojraj & Charles M. C. Lee & Derek K. Oler, 2003. "What's My Line? A Comparison of Industry Classification Schemes for Capital Market Research," Journal of Accounting Research, Wiley Blackwell, vol. 41(5), pages 745-774, December.
  5. N. Vandewalle & F. Brisbois & X. Tordoir, 2001. "Non-random topology of stock markets," Quantitative Finance, Taylor & Francis Journals, vol. 1(3), pages 372-374.
  6. Rosario N. Mantegna, 1998. "Hierarchical Structure in Financial Markets," Papers cond-mat/9802256, arXiv.org.
  7. Jaroslaw Kwapien & Sylwia Gworek & Stanislaw Drozdz & Andrzej Gorski, 2009. "Analysis of a network structure of the foreign currency exchange market," Papers 0906.0480, arXiv.org.
  8. Karolyi, G Andrew & Stulz, Rene M, 1996. " Why Do Markets Move Together? An Investigation of U.S.-Japan Stock Return Comovements," Journal of Finance, American Finance Association, vol. 51(3), pages 951-86, July.
  9. Tse, Chi K. & Liu, Jing & Lau, Francis C.M., 2010. "A network perspective of the stock market," Journal of Empirical Finance, Elsevier, vol. 17(4), pages 659-667, September.
  10. Jarosław Kwapień & Sylwia Gworek & Stanisław Drożdż & Andrzej Górski, 2009. "Analysis of a network structure of the foreign currency exchange market," Journal of Economic Interaction and Coordination, Springer, vol. 4(1), pages 55-72, June.
  11. Dong-Ming Song & Michele Tumminello & Wei-Xing Zhou & Rosario N. Mantegna, 2011. "Evolution of worldwide stock markets, correlation structure and correlation based graphs," Papers 1103.5555, arXiv.org.
  12. Mervyn A. King & Sushil Wadhwani, 1989. "Transmission of Volatility Between Stock Markets," NBER Working Papers 2910, National Bureau of Economic Research, Inc.
  13. J.-P. Onnela & K. Kaski & J. Kertész, 2004. "Clustering and information in correlation based financial networks," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 38(2), pages 353-362, 03.
  14. Kaddour Hadri, 1999. "Testing For Stationarity In Heterogeneous Panel Data," Research Papers 1999_04, University of Liverpool Management School.
  15. Zhang, Yiting & Lee, Gladys Hui Ting & Wong, Jian Cheng & Kok, Jun Liang & Prusty, Manamohan & Cheong, Siew Ann, 2011. "Will the US economy recover in 2010? A minimal spanning tree study," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(11), pages 2020-2050.
  16. Jörg Breitung & Samarjit Das, 2005. "Panel unit root tests under cross-sectional dependence," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 59(4), pages 414-433.
  17. 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.
  18. Kristin Forbes & Roberto Rigobon, 1999. "No Contagion, Only Interdependence: Measuring Stock Market Co-movements," NBER Working Papers 7267, National Bureau of Economic Research, Inc.
  19. B. M. Tabak & T. R. Serra & D. O. Cajueiro, 2010. "Topological properties of commodities networks," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 74(2), pages 243-249, March.
  20. 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.
  21. Eryiğit, Mehmet & Eryiğit, Resul, 2009. "Network structure of cross-correlations among the world market indices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(17), pages 3551-3562.
  22. Gilmore, Claire G. & Lucey, Brian M. & Boscia, Marian, 2008. "An ever-closer union? Examining the evolution of linkages of European equity markets via minimum spanning trees," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(25), pages 6319-6329.
  23. Onnela, J.-P. & Chakraborti, A. & Kaski, K. & Kertész, J., 2003. "Dynamic asset trees and Black Monday," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 247-252.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:phsmap:v:391:y:2012:i:16:p:4147-4158. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.