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

Ricardo Coelho·Claire G. Gilmore·Brian Lucey·Peter Richmond·Stefan Hutzler
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Abstract

The minimum spanning tree is used to study the process of market integration for a large group of national stock market indices. We show how the asset tree evolves over time and describe the dynamics of its normalized length, mean occupation layer, and single- and multiple-step linkage survival rates. Over the period studied, 1997-2006, the tree shows a tendency to become more compact. 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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Ricardo Coelho, Claire G. Gilmore, Brian Lucey, Peter Richmond, Stefan Hutzler. 2006-07-04. The Evolution of Interdependence in World Equity Markets - Evidence from Minimum Spanning Trees. https://doi.org/10.1016/j.physa.2006.10.045

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