 Revisiting asset co-movement: Does network topology really matter?Huai-Long Shi and Huayi Chen Research in International Business and Finance, 2023, vol. 66, issue C Abstract: Asset co-movement has garnered increasing attention from researchers in both traditional finance and emerging interdisciplinary disciplines. However, there is limited knowledge regarding the consistency of market-wide co-movement proxies constructed based on these two perspectives. Employing Fama–French industry portfolios as samples, we construct market-wide co-movement proxies in terms of R2-based and network-based approaches. We further examine if and how market-wide co-movement is priced using supervised principal analysis (SPCA) proposed by Giglio et al. (2021). Our findings include: First, most topological properties are highly correlated with the R2-based proxies. Second, the risk-premium estimates by the SPCA range from 90 bps to 130 bps per month, depending on the size of the latent factors considered. Furthermore, most co-movement proxies are linked to the characteristics regarding asset fundamentals. However, the associated R2 values remain around only 15%, highlighting the challenges in hedging the risks associated with market-wide co-movement in equity markets. Keywords: Co-movement; R-squared; Network theory; PCA; Asset pricing (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:66:y:2023:i:c:s0275531923001903 DOI: 10.1016/j.ribaf.2023.102064 Access Statistics for this article Research in International Business and Finance is currently edited by T. Lagoarde Segot More articles in Research in International Business and Finance from Elsevier |
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