Novel indexes based on network structure to indicate financial market

Tao Zhong, Qinke Peng, Xiao Wang and Jing Zhang

Physica A: Statistical Mechanics and its Applications, 2016, vol. 443, issue C, 583-594

Abstract: There have been various achievements to understand and to analyze the financial market by complex network model. However, current studies analyze the financial network model but seldom present quantified indexes to indicate or forecast the price action of market. In this paper, the stock market is modeled as a dynamic network, in which the vertices refer to listed companies and edges refer to their rank-based correlation based on price series. Characteristics of the network are analyzed and then novel indexes are introduced into market analysis, which are calculated from maximum and fully-connected subnets. The indexes are compared with existing ones and the results confirm that our indexes perform better to indicate the daily trend of market composite index in advance. Via investment simulation, the performance of our indexes is analyzed in detail. The results indicate that the dynamic complex network model could not only serve as a structural description of the financial market, but also work to predict the market and guide investment by indexes.

Keywords: Network analysis; Structure-based index; Maximum and fully-connected subnet (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:443:y:2016:i:c:p:583-594

DOI: 10.1016/j.physa.2015.10.008

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