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Will the US Economy Recover in 2010? A Minimal Spanning Tree Study

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Listed:
  • Yiting Zhang
  • Gladys Hui Ting Lee
  • Jian Cheng Wong
  • Jun Liang Kok
  • Manamohan Prusty
  • Siew Ann Cheong

Abstract

We calculated the cross correlations between the half-hourly times series of the ten Dow Jones US economic sectors over the period February 2000 to August 2008, the two-year intervals 2002--2003, 2004--2005, 2008--2009, and also over 11 segments within the present financial crisis, to construct minimal spanning trees (MSTs) of the US economy at the sector level. In all MSTs, a core-fringe structure is found, with consumer goods, consumer services, and the industrials consistently making up the core, and basic materials, oil and gas, healthcare, telecommunications, and utilities residing predominantly on the fringe. More importantly, we find that the MSTs can be classified into two distinct, statistically robust, topologies: (i) star-like, with the industrials at the center, associated with low-volatility economic growth; and (ii) chain-like, associated with high-volatility economic crisis. Finally, we present statistical evidence, based on the emergence of a star-like MST in Sep 2009, and the MST staying robustly star-like throughout the Greek Debt Crisis, that the US economy is on track to a recovery.

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  • Yiting Zhang & Gladys Hui Ting Lee & Jian Cheng Wong & Jun Liang Kok & Manamohan Prusty & Siew Ann Cheong, 2010. "Will the US Economy Recover in 2010? A Minimal Spanning Tree Study," Papers 1009.5800, arXiv.org, revised Dec 2010.
  • Handle: RePEc:arx:papers:1009.5800
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    File URL: http://arxiv.org/pdf/1009.5800
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    References listed on IDEAS

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    1. Max R. Blouin & Roberto Serrano, 2001. "A Decentralized Market with Common Values Uncertainty: Non-Steady States," Review of Economic Studies, Oxford University Press, vol. 68(2), pages 323-346.
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    Cited by:

    1. Leonidas Sandoval Junior, 2011. "A Map of the Brazilian Stock Market," Papers 1107.4146, arXiv.org, revised Mar 2013.
    2. Leonidas Sandoval Junior, 2011. "Cluster formation and evolution in networks of financial market indices," Papers 1111.5069, arXiv.org.
    3. Leonidas Sandoval Junior, 2011. "Pruning a Minimum Spanning Tree," Papers 1109.0642, arXiv.org.
    4. 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.

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