A Network of two Markets, Correlations for Stocks in the S P500 Index and Stocks Traded in the BMV

• Published in: Revista mexicana de economía y finanzas = Mexican journal of economics and finance : REMEF Vol. 18; no. 3; p. e731
• Main Authors: Erick Treviño Aguilar, Gilberto Calvillo Vives, Jeremy Heald
• Format: Journal Article
• Language: English
• Published: Instituto Mexicano de Ejecutivos de Finanzas 01.06.2023
• Subjects: international financial markets, international trade, nafta, stock market
• ISSN: 2448-6795
• DOI: 10.21919/remef.v18i3.731

Our goal is to study how stocks from Mexico and United States are interconnected. We apply a novel method based on a graphical model. We estimate partial correlations for every year of the period 2000-2020. Our results based on partial correlation matrices show a systematic level of inter-connectivity across countries that metrics from network theory confirm. An important difference between these countries is how sectors in each market are linked. Most sector graphs in the United States are densely interconnected. In contrast, sectors in Mexico present much less links. We then compare networks in the periods of the subprime mortgage crisis and the crisis triggered by the COVID-19 pandemic. The different propagation speeds of both crises are correctly captured by the metrics. A limitation is derived from information, and it is desirable to include actualized data in the study. The deployed novel method, which led to obtain new results, endow originality to the work. It is concluded that disaggregated data provides a promising venue of research.