Global stock market landscape: an application of minimum spanning tree technique

Kusdhianto Setiawan

International Journal of Operational Research, 2014, vol. 20, issue 1, 41-67

Abstract: This paper analyses the degree of integration among 22 stock markets from Asia Pacific, Europe, and the USA from 2000 to 2010. Unlike previous literature on capital market integration, this paper used the minimum spanning tree technique to measure the degree of integration of the markets simultaneously or on a multilateral basis (on a set of markets) instead of on a bilateral basis (a relationship between two markets). A measure of consistency of the minimum spanning tree (MST) structure over observation periods was developed. Findings show that the degree of integration is dynamic but tends to increase (markets are becoming more integrated). However, the stock market integration is incomplete; market segments based on geographic proximity with an internationally diversified portfolio offer gains in a strongly integrated world financial market.

Keywords: minimum spanning tree; MST; capital market integration; asset returns comovement; global stock markets; geographic proximity; internationally diversified portfolios; world financial markets. (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijores:v:20:y:2014:i:1:p:41-67

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