Risk transfer between stock and open-ended equity fund markets in China based on a multi-layer network model

Yaozhong Zhang, Junfeng Wu and Chao Zhang

Physica A: Statistical Mechanics and its Applications, 2021, vol. 565, issue C

Abstract: Due to the holding relationship between open-ended equity funds (OEFs) and stocks, risks can spread between stock and OEF markets directly. To develop an effective response strategy for this risk transfer, this paper constructs an interdependent stock-fund network to describe the relationship between the two markets and proposes a risk transfer model to investigate the risk transfer process between them. This model is applied to stock and OEF markets in China. Through a sensitivity analysis of three variables including the initial impact level of risk, the OEF liquidation line, and the stock discount rate, the changes in the OEF liquidation rate and the stock index under different conditions are analysed quantitatively. The results show the following: (1) The OEF liquidation rate and stock index have obvious percolation processes with the changes in the three parameters; (2) Risks are transferred between the two markets more rapidly when the parameters are larger than their thresholds; and (3) Affected by the size of the OEFs and the market value of the stocks, the initial impact level of risk and the OEF liquidation line have more significant impacts on the two markets than the stock discount rate. The proposed models can assist the decision makers in better understanding the risk transfer process between stock and OEF markets and to select effective strategies to respond to different risks.

Keywords: Stock market; Open-ended equity fund; Network model; Risk transfer; Response strategy (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:565:y:2021:i:c:s0378437120308475

DOI: 10.1016/j.physa.2020.125549

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