The impact of the cross-shareholding network on extreme price movements: evidence from China

Jie Cao and Fenghua Wen

Journal of Risk

Abstract: By using information about the ownership structure of listed companies from 2004 to 2016, we construct the cross-shareholding network for each year and examine the effects of the network position of a firm on extreme price movement. The results show that firms that are in more central positions exhibit less extreme price movements because they have more connections with other firms, because they can collect or disseminate information more easily through their connections and because their price information transparency is higher. Moreover, we examine the different effects of network structure on extreme upward and downward movements in price and find that the centrality of a firm more strongly inhibits extreme price upward movements than it does downward movements. Our results suggest that a firm’s position in the cross-shareholding network can influence its extreme price movements, which gives us new insights into extreme stock market movements and provides useful suggestions for future financial regulations.

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