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

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  • Ricardo Coehlo
  • Claire Gilmore
  • Brian M. Lucey

Abstract

The minimum spanning tree concept from physics is used to study the process of market integration for a large group of national stock market indices. We show how the tree grows over time and describe the dynamics of its various characteristics. Over the period studied, 1997-2006, the tree shows a tendency to become less bushy. 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 Coehlo & Claire Gilmore & Brian M. Lucey, 2006. "The Evolution of Interdependence in World Equity Markets - Evidence from Minimum Spanning Trees," The Institute for International Integration Studies Discussion Paper Series iiisdp142, IIIS.
    • Handle: RePEc:iis:dispap:iiisdp142
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    Keywords

    Econophysics; minimal spanning trees;

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