IDEAS home Printed from https://ideas.repec.org/a/eee/phsmap/v415y2014icp1-18.html
   My bibliography  Save this article

Research on the evolution of stock correlation based on maximal spanning trees

Author

Listed:
  • Yang, Chunxia
  • Zhu, Xueshuai
  • Li, Qian
  • Chen, Yanhua
  • Deng, Qiangqiang

Abstract

In this study, we choose the daily closing price of 268 constituent stocks of the S&P 500 index, 221 stocks of London Stock Exchange, 148 constituent stocks of the Shanghai Composite index and 152 constituent stocks of the Hang Seng index as the research objects and select the sample of all the stock markets from 2 January, 2003, to 16 September, 2013. For each stock market, first, using a moving window to scan through every stock return series and mutual information to measure the statistical interdependence between stock returns, we construct a corresponding weighted network in every given window. Then we study the evolution of stock correlation by analyzing the average mutual information, mutual information distribution and topology structure’s variation of the maximal spanning tree extracting from every weighted network. All the obtained results indicate that for all the stock markets, both the average mutual information and the standard deviation of mutual information distribution first gradually increase and they reach a peak during the full-outbreak periods, and finally, they decrease again. In addition, the topology structure of the maximal spanning tree also changes from compact star-like to loose chain-like first and then turns to compact star-like once more. All the facts tell us that the crisis does change the stock correlation and the stock correlation is from weak to strong first, and then becomes weak again.

Suggested Citation

  • Yang, Chunxia & Zhu, Xueshuai & Li, Qian & Chen, Yanhua & Deng, Qiangqiang, 2014. "Research on the evolution of stock correlation based on maximal spanning trees," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 415(C), pages 1-18.
    • Handle: RePEc:eee:phsmap:v:415:y:2014:i:c:p:1-18
    DOI: 10.1016/j.physa.2014.07.069
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378437114006554
    Download Restriction: Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000
    File URL: https://libkey.io/10.1016/j.physa.2014.07.069?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Giulia Iori, 1999. "Avalanche Dynamics And Trading Friction Effects On Stock Market Returns," International Journal of Modern Physics C (IJMPC), World Scientific Publishing Co. Pte. Ltd., vol. 10(06), pages 1149-1162.
    2. Parameswaran Gopikrishnan & Vasiliki Plerou & Luis A. Nunes Amaral & Martin Meyer & H. Eugene Stanley, 1999. "Scaling of the distribution of fluctuations of financial market indices," Papers cond-mat/9905305, arXiv.org.
    3. 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.
    4. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    5. Lisa Borland & Jean-Philippe Bouchaud & Jean-Francois Muzy & Gilles Zumbach, 2005. "The Dynamics of Financial Markets -- Mandelbrot's multifractal cascades, and beyond," Papers cond-mat/0501292, arXiv.org.
    6. V. Plerou & P. Gopikrishnan & L. A. N. Amaral & M. Meyer & H. E. Stanley, 1999. "Scaling of the distribution of price fluctuations of individual companies," Papers cond-mat/9907161, arXiv.org.
    7. Heimo, Tapio & Kaski, Kimmo & Saramäki, Jari, 2009. "Maximal spanning trees, asset graphs and random matrix denoising in the analysis of dynamics of financial networks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(2), pages 145-156.
    8. Benoit Mandelbrot, 1967. "The Variation of Some Other Speculative Prices," The Journal of Business, University of Chicago Press, vol. 40, pages 393-393.
    9. Zhang, Yiting & Lee, Gladys Hui Ting & Wong, Jian Cheng & Kok, Jun Liang & Prusty, Manamohan & Cheong, Siew Ann, 2011. "Will the US economy recover in 2010? A minimal spanning tree study," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(11), pages 2020-2050.
    10. Jean-Philippe Bouchaud & Andrew Matacz & Marc Potters, 2001. "The leverage effect in financial markets: retarded volatility and market panic," Science & Finance (CFM) working paper archive 0101120, Science & Finance, Capital Fund Management.
    11. Lisa Borland & Jean-Philippe Bouchaud & Jean-Francois Muzy & Gilles Zumbach, 2005. "The Dynamics of Financial Markets -- Mandelbrot's multifractal cascades, and beyond," Science & Finance (CFM) working paper archive 500061, Science & Finance, Capital Fund Management.
    12. Mizuno, Takayuki & Takayasu, Hideki & Takayasu, Misako, 2006. "Correlation networks among currencies," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 364(C), pages 336-342.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wang, Yanli & Li, Huajiao & Guan, Jianhe & Liu, Nairong, 2019. "Similarities between stock price correlation networks and co-main product networks: Threshold scenarios," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 516(C), pages 66-77.
    2. A. Q. Barbi & G. A. Prataviera, 2017. "Nonlinear dependencies on Brazilian equity network from mutual information minimum spanning trees," Papers 1711.06185, arXiv.org, revised May 2019.
    3. Chunxia, Yang & Xueshuai, Zhu & Luoluo, Jiang & Sen, Hu & He, Li, 2016. "Study on the contagion among American industries," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 444(C), pages 601-612.
    4. Fei Ren & Ya-Nan Lu & Sai-Ping Li & Xiong-Fei Jiang & Li-Xin Zhong & Tian Qiu, 2017. "Dynamic Portfolio Strategy Using Clustering Approach," PLOS ONE, Public Library of Science, vol. 12(1), pages 1-23, January.
    5. Barbi, A.Q. & Prataviera, G.A., 2019. "Nonlinear dependencies on Brazilian equity network from mutual information minimum spanning trees," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 523(C), pages 876-885.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. L. Borland & J. -Ph. Bouchaud, 2005. "On a multi-timescale statistical feedback model for volatility fluctuations," Papers physics/0507073, arXiv.org.
    2. Gautier Marti & Frank Nielsen & Miko{l}aj Bi'nkowski & Philippe Donnat, 2017. "A review of two decades of correlations, hierarchies, networks and clustering in financial markets," Papers 1703.00485, arXiv.org, revised Nov 2020.
    3. Peng Liu & Yanyan Zheng, 2022. "Precision measurement of the return distribution property of the Chinese stock market index," Papers 2209.08521, arXiv.org, revised Nov 2023.
    4. Djauhari, Maman Abdurachman & Gan, Siew Lee, 2015. "Optimality problem of network topology in stocks market analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 419(C), pages 108-114.
    5. Oussama Tilfani & My Youssef El Boukfaoui, 2020. "Multifractal Analysis of African Stock Markets During the 2007–2008 US Crisis," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 22(04), pages 1-31, January.
    6. Marcin Wk{a}torek & Stanis{l}aw Dro.zd.z & Jaros{l}aw Kwapie'n & Ludovico Minati & Pawe{l} O'swik{e}cimka & Marek Stanuszek, 2020. "Multiscale characteristics of the emerging global cryptocurrency market," Papers 2010.15403, arXiv.org, revised Mar 2021.
    7. T. T. Chen & B. Zheng & Y. Li & X. F. Jiang, 2017. "New approaches in agent-based modeling of complex financial systems," Papers 1703.06840, arXiv.org.
    8. Łukasz Bil & Dariusz Grech & Magdalena Zienowicz, 2017. "Asymmetry of price returns—Analysis and perspectives from a non-extensive statistical physics point of view," PLOS ONE, Public Library of Science, vol. 12(11), pages 1-24, November.
    9. Tetsuya Takaishi, 2021. "Time-varying properties of asymmetric volatility and multifractality in Bitcoin," PLOS ONE, Public Library of Science, vol. 16(2), pages 1-21, February.
    10. Gu, Gao-Feng & Zhou, Wei-Xing, 2007. "Statistical properties of daily ensemble variables in the Chinese stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 383(2), pages 497-506.
    11. Repetowicz, Przemysław & Richmond, Peter, 2004. "Modeling of waiting times and price changes in currency exchange data," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 343(C), pages 677-693.
    12. Lisa Borland & Jean-Philippe Bouchaud & Jean-Francois Muzy & Gilles Zumbach, 2005. "The Dynamics of Financial Markets -- Mandelbrot's multifractal cascades, and beyond," Science & Finance (CFM) working paper archive 500061, Science & Finance, Capital Fund Management.
    13. Inoua, Sabiou M. & Smith, Vernon L., 2023. "A classical model of speculative asset price dynamics," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).
    14. Luis Goncalves de Faria, 2022. "An Agent-Based Model With Realistic Financial Time Series: A Method for Agent-Based Models Validation," Papers 2206.09772, arXiv.org.
    15. Yan, Hanhuan & Han, Liyan, 2019. "Empirical distributions of stock returns: Mixed normal or kernel density?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 514(C), pages 473-486.
    16. Eisler, Z. & Kertész, J., 2004. "Multifractal model of asset returns with leverage effect," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 343(C), pages 603-622.
    17. Deviren, Seyma Akkaya & Deviren, Bayram, 2016. "The relationship between carbon dioxide emission and economic growth: Hierarchical structure methods," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 451(C), pages 429-439.
    18. Wang, Lei & Liu, Lutao, 2020. "Long-range correlation and predictability of Chinese stock prices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 549(C).
    19. Jovanovic, Franck & Schinckus, Christophe, 2017. "Econophysics and Financial Economics: An Emerging Dialogue," OUP Catalogue, Oxford University Press, number 9780190205034.
    20. Kazemilari, Mansooreh & Mardani, Abbas & Streimikiene, Dalia & Zavadskas, Edmundas Kazimieras, 2017. "An overview of renewable energy companies in stock exchange: Evidence from minimal spanning tree approach," Renewable Energy, Elsevier, vol. 102(PA), pages 107-117.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:phsmap:v:415:y:2014:i:c:p:1-18. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.