The hierarchical structure of stock market in times of global financial crisis

Jia-Bing Zhang, Ya-Chun Gao and Shi-Min Cai

Physica A: Statistical Mechanics and its Applications, 2020, vol. 542, issue C

Abstract: The financial market dynamics has been widely studied by theoretical methods developed in turbulence. The hierarchical structure of stock market related to multifractal scaling has been found by She–Leveque (SL) hierarchy theory. In this paper, we further quantitatively investigate the universal and nonuniversal properties of such hierarchical structure based on diverse price indices and sector indices in various stock markets. Meanwhile, we consider the sampling duration of these indices spanning 6 fiscal years from 2006 to 2011, and mainly investigate the impact of subprime mortgage crisis on the hierarchical structure of stock market. In the perspective of price index and sector index, the empirical results show that the hierarchical structure is universal and generic to stock market dynamics, but its degree is nonuniversal in restricted to different scaling exponent β among the stock markets or sectors. We understand that the nonuniversal degrees of hierarchical structure are induced by the imbalance of state or sector economic development. More importantly, we comprehensively analyze the evolution of β in respect to each fiscal year to understand the impact of global financial crisis on the stock market dynamics. In the perspective of price index, we find the evolutionary trends of β are different between Euramerican and Asian regions, and the deviations of β in the fiscal year 2007 and 2008 are much smaller. Also, in the perspective of sector index, similar results are unveiled that the deviation of β is the smallest in the fiscal year 2008. These empirical results based on the evolution of β to some extent imply the great impact of global financial crisis on the collective dynamics of stock markets.

Keywords: Hierarchical structure; SL hierarchy theory; Market dynamics; Financial crisis (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:542:y:2020:i:c:s0378437119319260

DOI: 10.1016/j.physa.2019.123452

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