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Measuring the network connectedness of global stock markets

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  • Gong, Chen
  • Tang, Pan
  • Wang, Yutong

Abstract

This paper makes an analysis of stock market network connectedness by using transfer entropy method, and discovers that nodes of regions affected by the crisis become closer to each other and the total network connectedness rises during the crisis. Moreover, the closer the stock market is towards the center of the network, the more likely it is affected by the shock. Last but not the least, dynamics of total network connectedness obtained by transfer entropy method is more stable and easier to interpret, avoiding the jumping points in calculation with the VAR model. Theory of transfer entropy shows its great potential in understanding the correlation and information flow of financial markets.

Suggested Citation

  • Gong, Chen & Tang, Pan & Wang, Yutong, 2019. "Measuring the network connectedness of global stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 535(C).
    • Handle: RePEc:eee:phsmap:v:535:y:2019:i:c:s0378437119313548
    DOI: 10.1016/j.physa.2019.122351
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    8. Muzi Chen & Yuhang Wang & Boyao Wu & Difang Huang, 2024. "Dynamic Analyses of Contagion Risk and Module Evolution on the SSE A-Shares Market Based on Minimum Information Entropy," Papers 2403.19439, arXiv.org.
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    19. Contreras-Reyes, Javier E. & Jeldes-Delgado, Fabiola & Carrasco, Raúl, 2024. "Jensen-Detrended Cross-Correlation function for non-stationary time series with application to Latin American stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 654(C).
    20. Díaz, Antonio & Esparcia, Carlos & López, Raquel, 2022. "The diversifying role of socially responsible investments during the COVID-19 crisis: A risk management and portfolio performance analysis," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 39-60.
    21. Yang, Jie & Feng, Yun & Yang, Hao, 2024. "The spillover and comovement of downside and upside tail risks among crude oil futures markets," International Review of Financial Analysis, Elsevier, vol. 96(PA).
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