The risk hierarchy of the developed and emerging stock markets

The aim of this study is to investigate the risk hierarchy in global stock markets. Previous studies on stock markets have found that markets have different characteristics. These markets, classified in terms of their features, are in the literature; developed stock markets and emerging stock markets. The stock markets of 49 developed and developing countries published by Morgan Stanley Capital International (MSCI) are analyzed together. The representative stock price performance indices of the markets are used to ensure that the research produces better results. In addition, daily closing prices between 2000-2020 were included in the study. Market risk is measured with standard deviation. Dynamic time warping algorithm has been used to establish the similarity between developed and emerging stock markets and the results are applied to the minimum spanning tree method. In the minimum spanning tree method using the Kruskal algorithm, a hierarchy is achieved by combining market pairs with the highest risk relationship. Research findings; It shows that Australia, United Kingdom, Denmark and Singapore occupy leading positions in the risk hierarchy. Overall, the hierarchy results show that the risk has increased exponentially from developed stock markets to emerging stock markets. This proves that developed stock markets are more integrated than emerging stock markets.