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Pruning a minimum spanning tree

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  • Sandoval, Leonidas

Abstract

This work employs various techniques in order to filter random noise from the information provided by minimum spanning trees obtained from the correlation matrices of international stock market indices prior to and during times of crisis. The first technique establishes a threshold above which connections are considered affected by noise, based on the study of random networks with the same probability density distribution of the original data. The second technique is to judge the strength of a connection by its survival rate, which is the amount of time a connection between two stock market indices endures. The idea is that true connections will survive for longer periods of time, and that random connections will not. That information is then combined with the information obtained from the first technique in order to create a smaller network, in which most of the connections are either strong or enduring in time.

Suggested Citation

  • Sandoval, Leonidas, 2012. "Pruning a minimum spanning tree," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(8), pages 2678-2711.
  • Handle: RePEc:eee:phsmap:v:391:y:2012:i:8:p:2678-2711
    DOI: 10.1016/j.physa.2011.12.052
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