Graph Theoretical Representations of Equity Indices and their Centrality Measures

19 Pages Posted: 5 Nov 2019

See all articles by Stephen Michael Taylor

Stephen Michael Taylor

New Jersey Institute of Technology

Luca Di Cerbo

affiliation not provided to SSRN

Date Written: October 26, 2019

Abstract

We define and study a correlation based notion of equity market centrality. This is pursued by examining the minimum spanning tree of a complete market graph that represents trading pattern similarities between the members of indices of equity securities. Specifically, we consider the degree centrality of the minimal spanning tree extracted from the complete market graph, and we compare and contrast this measure of centrality with the average pairwise correlation between members of an equity index. In addition, we perform numerical experiments on United States equity indices of varying size in addition to several major international equity markets. We highlight differences between the interpretation of this centrality measure for small and large market networks.

Keywords: market centrality, market graph, degree centrality, minimum spanning tree

JEL Classification: C32, C52, C63, G10

Suggested Citation

Taylor, Stephen Michael and Di Cerbo, Luca, Graph Theoretical Representations of Equity Indices and their Centrality Measures (October 26, 2019). Available at SSRN: https://ssrn.com/abstract=3475767 or http://dx.doi.org/10.2139/ssrn.3475767

Stephen Michael Taylor (Contact Author)

New Jersey Institute of Technology ( email )

University Heights
Newark, NJ 07102
United States

Luca Di Cerbo

affiliation not provided to SSRN

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