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13 (1) 2023

Minimal Spanning Tree application to determine market correlation structure


Author - Affiliation:
Bui Thanh Khoa - Industrial University of Ho Chi Minh City, Ho Chi Minh City , Vietnam
Tran Trong Huynh - FPT University, Hanoi , Vietnam
Vo Dinh Nhat Truong - FPT University, Hanoi , Vietnam
Le Vu Truong - FPT University, Hanoi , Vietnam
Do Bui Xuan Cuong - Industrial University of Ho Chi Minh City, Ho Chi Minh City , Vietnam
Tran Khanh - Industrial University of Ho Chi Minh City, Ho Chi Minh City , Vietnam
Corresponding author: Bui Thanh Khoa - buithanhkhoa@iuh.edu.vn
Submitted: 01-03-2023
Accepted: 24-03-2023
Published: 05-04-2023

Abstract
Determining the structure of market correlation is an important topic in theory and experiments. Under the impact of the Covid-19 pandemic, the market structure may be deformed. Therefore, this study examines the pandemic’s impact on the market structure. This study considered the correlation structure of the VN30 portfolio (including 30 stocks with the largest market capitalization); the collecting period is from July 28, 2000, to July 30, 2021. The data was divided into 02 phases before and after the pandemic. The Kruskal algorithm is implemented to determine the Minimal Spanning Tree (MST) structure to define the structure of market correlation. This study compared the change in the structure before and after the Covid-19 pandemic by structures’ mean of distances comparison. T-test results show that there are structural differences before and after the pandemic. Based on the research result, investors should change their risk management strategy to suit the market context because the previous structure has been changed.

Keywords
Covid-19 pandemic; market correlation structure; mean of distances; Minimal Spanning Tree; T-Test

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Cite this paper as:

Bui, K. T., Tran, H. T., Vo, T. D. N., Le, T. V., Do, C. B. X., & Tran, K. (2023). Minimal Spanning Tree application to determine market correlation structure. Ho Chi Minh City Open University Journal of Science – Engineering and Technology, 13(1), 64-71. doi:10.46223/HCMCOUJS.tech.en.13.1.2669.2023


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DOI: https://doi.org/10.46223/HCMCOUJS.tech.en.13.1.2669.2023
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