Group dynamics of the Japanese market

TL;DR

This paper analyzes the Japanese stock market's network structure, revealing increasing external influences from globalization and showing that removing international market effects enhances traditional industry groupings.

Contribution

It introduces a method to account for international market influence, demonstrating its impact on the Japanese market's network structure.

Findings

Decreasing trend in grouping coefficient suggests rising external influence.

Removing international market correlation reveals stronger industry groupings.

Globalization affects the internal structure of the Japanese stock market.

Abstract

We investigated the network structures of the Japanese stock market through the minimum spanning tree. We defined grouping coefficient to test the validity of conventional grouping by industrial categories, and found a decreasing in trend for the coefficient. This phenomenon supports the increasing external influences on the market due to the globalization. To reduce this influence, we used S&P500 index as the international market and removed its correlation with every stock. We found stronger grouping in this measurement, compared to the original analysis, which agrees with our assumption that the international market influences to the Japanese market.