CLUSTERING IN KEY G-7 STOCK MARKET INDICES: AN INNOVATIVE APPROACH

Abstract

Investment in stock market requires taking risk. Investors typically buy several stocks to create a portfolio which targets to maximize the return while keeping a certain level of risk. In today's information-rich financial markets one of the main challenges for individual investors in particular is to allocate the scarce sources appropriately within the wide range of investment alternatives that grouping the multiple assets based on their similar characteristics would be useful to take it out. In this paper stock markets of the Group of 7 (G-7) countries consisting of France United Kingdom Germany Italy United States Canada and Japan are examined over the period of 2011 and 2016 and some hierarchical clustering methods are applied on key indices namely CAC 40 (France) FTSE 100 (UK) DAX (Germany) FTSE MIB (Italy) S& P TSX Composite (Canada) S& P 500 (USA) NIKKEI 225 (Japan) to identify the groups based on risk and return characteristics.1