The effect of a market factor on information flow between stocks using the minimal spanning tree

Cheoljun Eom, Okyu Kwon, Woo-Sung Jung and Seunghwan Kim

Physica A: Statistical Mechanics and its Applications, 2010, vol. 389, issue 8, 1643-1652

Abstract: We empirically investigated the effects of market factors on the information flow created from N(N−1)/2 linkage relationships among stocks. We also examined the possibility of employing the minimal spanning tree (MST) method, which is capable of reducing the number of links to N−1. We determined that market factors carry important information value regarding information flow among stocks. Moreover, the information flow among stocks showed time-varying properties according to the changes in market status. In particular, we noted that the information flow increased dramatically during periods of market crises. Finally, we confirmed, via the MST method, that the information flow among stocks could be assessed effectively with the reduced linkage relationships among all links among stocks from the perspective of the overall market.

Keywords: Econophysics; Minimal spanning tree; Information flow (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:389:y:2010:i:8:p:1643-1652

DOI: 10.1016/j.physa.2009.12.044

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