A network analysis on fund portfolio mismatch and market volatility: evidence from China

Yuan Zhang, Shaoling Chen and Honghua Zhang

Asia-Pacific Journal of Accounting & Economics, 2024, vol. 31, issue 3, 395-422

Abstract: A large number of studies suggest that network analysis can better explain the formation and contagion of financial risks. However, it’s controversial whether the financial network connection act as a booster or a stabilizer for market volatility. This paper proves that the degree of network connection is an essential factor in determining its impact on market volatility. It is found that actual industry-dimensional portfolios mismatch with the optimal portfolio constructed based on Markowitz portfolio theory, and the actual networks are over-connected by constructed the actual and optimal fund portfolio networks. Furthermore, it shows that the actual and optimal networks both act as stabilizer for market volatility, while the over-connection of networks exacerbates the market volatility and weaken the stability effect from the optimal network.

Date: 2024
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DOI: 10.1080/16081625.2022.2147963

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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