Unveiling correlations between financial variables and topological metrics of trading networks: Evidence from a stock and its warrant

Ming-Xia Li, Zhi-Qiang Jiang, Wen-Jie Xie, Xiong Xiong, Wei Zhang and Wei-Xing Zhou
Additional contact information
Ming-Xia Li: ECUST
Zhi-Qiang Jiang: ECUST
Wen-Jie Xie: ECUST
Xiong Xiong: TJU
Wei Zhang: TJU

Papers from arXiv.org

Abstract: Traders adopt different trading strategies to maximize their returns in financial markets. These trading strategies not only results in specific topological structures in trading networks, which connect the traders with the pairwise buy-sell relationships, but also have potential impacts on market dynamics. Here, we present a detailed analysis on how the market behaviors are correlated with the structures of traders in trading networks based on audit trail data for the Baosteel stock and its warrant at the transaction level from 22 August 2005 to 23 August 2006. In our investigation, we divide each trade day into 48 time windows with a length of five minutes, construct a trading network within each window, and obtain a time series of over 1,100 trading networks. We find that there are strongly simultaneous correlations between the topological metrics (including network centralization, assortative index, and average path length) of trading networks that characterize the patterns of order execution and the financial variables (including return, volatility, intertrade duration, and trading volume) for the stock and its warrant. Our analysis may shed new lights on how the microscopic interactions between elements within complex system affect the system's performance.

Date: 2013-08
New Economics Papers: this item is included in nep-mst and nep-net
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Published in Physica A 419, 575-584 (2015)

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Journal Article: Unveiling correlations between financial variables and topological metrics of trading networks: Evidence from a stock and its warrant (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1308.0925

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