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Cointegration-based financial networks study in Chinese stock market

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  • Tu, Chengyi

Abstract

We propose a method based on cointegration instead of correlation to construct financial complex network in Chinese stock market. The network is obtained starting from the matrix of p-value calculated by Engle–Granger cointegration test between all pairs of stocks. Then some tools for filtering information in complex network are implemented to prune the complete graph described by the above matrix, such as setting a level of statistical significance as a threshold and Planar Maximally Filtered Graph. We also calculate Partial Correlation Planar Graph of these stocks to compare the above networks. Last, we analyze these directed, weighted and non-symmetric networks by using standard methods of network analysis, including degree centrality, PageRank, HITS, local clustering coefficient, K-shell and strongly and weakly connected components. The results shed a new light on the underlying mechanisms and driving forces in a financial market and deepen our understanding of financial complex network.

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  • Tu, Chengyi, 2014. "Cointegration-based financial networks study in Chinese stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 402(C), pages 245-254.
    • Handle: RePEc:eee:phsmap:v:402:y:2014:i:c:p:245-254
    DOI: 10.1016/j.physa.2014.01.071
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