Dynamics of Network of Global Stock Markets

Xiao Fan Liu, Chi K. Tse


This paper studies the co-movement pattern of 67 stock market indices in the past 5 years. In order to capture the complex interaction of the stock markets, we propose a network approach to analyze the interdependence of the individual stock markets. Specifically, stock markets are considered as network nodes, and the network links (weights of links) are defined by the dynamic conditional correlation between market indices. We reveal the structure dynamics of global stock market integration by examining the variation of the network parameters as time elapses. We show that global stock markets have time-varying synchronization, and that developed markets tend to demonstrate stronger integration while emerging markets are statistically independent of each other. Furthermore, we show that stock markets of different countries generally behave in a synchronous manner when they experience fluctuation. This volatility spillover or financial contagion phenomenon is especially notable in the frontier markets. Our work exposes the interdependence of stock markets in the world and proposes a network approach to identifying some salient global behavior of the interconnecting markets.

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DOI: https://doi.org/10.5430/afr.v1n2p1


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