Indonesian Stock Market Dynamics Through Ultrametricity of Minimum Spanning Tree

Abstract

We analyze the evolving price fluctuations by using ultrametric distance of minimally spanning financial tree of stocks traded in Jakarta Stock Exchange 2000-2004. Ultrametricity is derived from transformation of correlation coefficients into the distances among stocks. Our analysis evaluates the performance of ups and downs of stock prices and discovers the evolution towards the financial and economic stabilization in Indonesia. This is partly recognized by mapping the hierarchical trees upon the realization of liquid and illiquid stocks. We remind that the methodology is useful in two terms: the evaluation of spectral market movements and intuitively understanding for portfolio management purposes.

Keywords: ultrametricity, minimum spanning tree, liquidity, Jakarta Stock Exchange.

JEL Classification: C22, C51, D49, R53