title: Modified multidimensional scaling approach to analyze financial markets.
abstract: Detrended cross-correlation coefficient (σDCCA) and dynamic time warping (DTW) are introduced as the dissimilarity measures, respectively, while multidimensional scaling (MDS) is employed to translate the dissimilarities between daily price returns of 24 stock markets. We first propose MDS based on σDCCA dissimilarity and MDS based on DTW dissimilarity creatively, while MDS based on Euclidean dissimilarity is also employed to provide a reference for comparisons. We apply these methods in order to further visualize the clustering between stock markets. Moreover, we decide to confront MDS with an alternative visualization method, "Unweighed Average" clustering method, for comparison. The MDS analysis and "Unweighed Average" clustering method are employed based on the same dissimilarity. Through the results, we find that MDS gives us a more intuitive mapping for observing stable or emerging clusters of stock markets with similar behavior, while the MDS analysis based on σDCCA dissimilarity can provide more clear, detailed, and accurate information on the classification of the stock markets than the MDS analysis based on Euclidean dissimilarity. The MDS analysis based on DTW dissimilarity indicates more knowledge about the correlations between stock markets particularly and interestingly. Meanwhile, it reflects more abundant results on the clustering of stock markets and is much more intensive than the MDS analysis based on Euclidean dissimilarity. In addition, the graphs, originated from applying MDS methods based on σDCCA dissimilarity and DTW dissimilarity, may also guide the construction of multivariate econometric models.
authors.affiliation: Department of Mathematics, School of Science, Beijing Jiaotong University, No. 3 of Shangyuan Residence, Haidian District, Beijing 100044, People's Republic of China.
authors.forename: Yi
authors.initials: Y
authors.lastname: Yin
authors.affiliation: Department of Mathematics, School of Science, Beijing Jiaotong University, No. 3 of Shangyuan Residence, Haidian District, Beijing 100044, People's Republic of China.
authors.forename: Pengjian
authors.initials: P
authors.lastname: Shang