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Network topology of FTSE 100 Index companies: From the perspective of Brexit

Hongxing Yao and Bilal Ahmed Memon

Physica A: Statistical Mechanics and its Applications, 2019, vol. 523, issue C, 1248-1262

Abstract: This study uses cross correlations in the daily closing prices of the London stock exchange FTSE 100 index companies from July 2010 to March 2018 to compute minimum spanning tree structures. A key aim of this study is to analyze the topological evolution of the market from the perspective of Brexit referendum. Therefore, the overall sample is divided into two sub-periods of equal time windows of pre-referendum, and post-referendum to obtain minimum spanning trees. The findings show formation of two major clusters belonging to financial, and consumer services sectors. Results further show surprising effect of Brexit referendum in form of expansion of tree after the event. The pre-referendum period tree demonstrates a less stable structure as compared to post-referendum period tree that shows weakening in the degree of connections per node. The sub metrics MST confirms the evidence of predominant central position by companies belonging to financials and consumer services sectors, while bridge role is being played by industrials sector afterwards referendum. In addition, the risk of affecting MST in the post-referendum period is lower in comparison with pre-referendum period suggesting a positive impact of Brexit referendum on FTSE 100 index companies.

Keywords: Minimum spanning tree; Stock market network; Brexit; FTSE 100 index companies (search for similar items in EconPapers)
Date: 2019
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Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

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