Optimality problem of network topology in stocks market analysis

Maman Abdurachman Djauhari and Siew Lee Gan

Physica A: Statistical Mechanics and its Applications, 2015, vol. 419, issue C, 108-114

Abstract: Since its introduction fifteen years ago, minimal spanning tree has become an indispensible tool in econophysics. It is to filter the important economic information contained in a complex system of financial markets’ commodities. Here we show that, in general, that tool is not optimal in terms of topological properties. Consequently, the economic interpretation of the filtered information might be misleading. To overcome that non-optimality problem, a set of criteria and a selection procedure of an optimal minimal spanning tree will be developed. By using New York Stock Exchange data, the advantages of the proposed method will be illustrated in terms of the power-law of degree distribution.

Keywords: Business sectors; Closeness centrality; Correlation networks; Market index; Stock networks (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:419:y:2015:i:c:p:108-114

DOI: 10.1016/j.physa.2014.09.060

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