A minimum spanning tree (MST) of shariah-compliant stocks listed on Bursa Malaysia : an empirical study

Abstract

Stock market is remarkably complex since the growth of stock market is continuous via diverse interactions among them. This complexity motivated researchers to investigate the network structure and to access the situation of stock market. However, less attention has been paid by researchers on shariah-compliant stocks. Thus, in this study, historical prices of shariah-compliant stocks from Bursa Malaysia are used to construct a minimum spanning tree (MST) network. The main contribution of this thesis is to construct networks of Malaysian shariah-compliant stocks from the year 2000 until 2018 using MST method. The networks are constructed based on four periods namely pre-crisis, crisis, post-crisis and the latest five years from the year 2014 until 2018. The performance of every stock in each network is evaluated using eight centrality measures namely degree, betweenness, closeness, eigenvector, eccentricity, domination, strength and average of weight centrality measures. The overall performance of stocks is summarized using a principal component analysis (PCA). The findings show that the hubs of the network changed throughout the four periods. Particularly, ten main clusters are found in pre-crisis network and five main clusters during crisis. In the post-crisis and the latest five years network, there are seven clusters and twelve clusters, respectively. The networks are analyzed based on the different criterion using centrality measures method and the centrality measures are then concluded using PCA. The results of PCA show that in the pre-crisis and post-crisis periods KUB Malaysia Berhad (6874) played an important role in both networks. While, during the crisis period the important stock was Unisem (5005) and the latest five years network shows that MK Land Holdings (2291) was the most important stock. This thesis can be considered as a reference to investors in terms of the overview of Malaysian shariah-compliant stock's network and important stocks for different periods. This information will help investors to strategize their portfolio selection.