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

Ricardo Coehlo , Claire Gilmore and Brian M. Lucey IIIS Discussion Paper No. 142

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. Keywords: Econophysics, minimal spanning trees


Last updated 28 August 2014 by IIIS (Email).