Time varying correlation structure of Chinese stock market of crude oil related companies greatly influenced by external factors

Leyang Xue, Feier Chen, Siqing Guo, Guiyuan Fu, Tingyi Li and Yinan Yang

Physica A: Statistical Mechanics and its Applications, 2019, vol. 530, issue C

Abstract: It is widely acknowledged that emerging stock markets and mature stock markets differ in many respects, while research on emerging markets is rather insufficient compared to well-studied mature markets. In this paper, we investigate the unique network properties and market pattern of the emerging Chinese stock market of crude oil related companies with the implementation of minimum spanning trees(MST) and hierarchical trees(HT). For a robust quantification of cross-correlation between stocks, detrended cross-correlation coefficient (DCCA coefficient) and partial cross-correlation coefficient (DPXA coefficient) are applied to reveal the overall cross-correlation and identify the common external factor on price fluctuations respectively. The paper depicts the dynamic evolution of Chinese stock market of crude oil related companies, showing the variation of structural density and stability under different time scales and market environments. The establishment of correlation-based networks provides a more pertinent explanation for the unusual market structure and conduct of the emerging Chinese stock market, contributing to both portfolio decisions and risk resistance.

Keywords: Minimum spanning tree; DCCA coefficient; DPXA coefficient; Correlation networks; Chinese stock market of crude oil related companies; Common external factor (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:530:y:2019:i:c:s0378437119306661

DOI: 10.1016/j.physa.2019.121086

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