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

Author

Listed:
  • Ming-Xia Li

    (ECUST)

  • Zhi-Qiang Jiang

    (ECUST)

  • Wen-Jie Xie

    (ECUST)

  • Xiong Xiong

    (TJU)

  • Wei Zhang

    (TJU)

  • Wei-Xing Zhou

    (ECUST)

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.

Suggested Citation

  • Ming-Xia Li & Zhi-Qiang Jiang & Wen-Jie Xie & Xiong Xiong & Wei Zhang & Wei-Xing Zhou, 2013. "Unveiling correlations between financial variables and topological metrics of trading networks: Evidence from a stock and its warrant," Papers 1308.0925, arXiv.org.
  • Handle: RePEc:arx:papers:1308.0925
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:phsmap:v:505:y:2018:i:c:p:945-964 is not listed on IDEAS
    2. Li, Jie & Ren, Da & Feng, Xu & Zhang, Yongjie, 2016. "Network of listed companies based on common shareholders and the prediction of market volatility," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 462(C), pages 508-521.
    3. repec:eee:phsmap:v:517:y:2019:i:c:p:515-521 is not listed on IDEAS
    4. Wu, Ting & Wang, Yue & Li, Ming-Xia, 2017. "Post-hit dynamics of price limit hits in the Chinese stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 465(C), pages 464-471.
    5. repec:eee:phsmap:v:523:y:2019:i:c:p:747-756 is not listed on IDEAS
    6. Zhang, Yongjie & Cao, Xing & He, Feng & Zhang, Wei, 2017. "Network topology analysis approach on China’s QFII stock investment behavior," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 473(C), pages 77-88.
    7. repec:kap:compec:v:51:y:2018:i:3:d:10.1007_s10614-016-9627-7 is not listed on IDEAS
    8. Fenghua Wen & Yujie Yuan & Wei-Xing Zhou, 2019. "Cross-shareholding networks and stock price synchronicity: Evidence from China," Papers 1903.01655, arXiv.org.
    9. Sun, Xiao-Qian & Shen, Hua-Wei & Cheng, Xue-Qi & Zhang, Yuqing, 2017. "Detecting anomalous traders using multi-slice network analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 473(C), pages 1-9.
    10. repec:eee:phsmap:v:513:y:2019:i:c:p:565-571 is not listed on IDEAS
    11. Chen, Kun & Luo, Peng & Sun, Bianxia & Wang, Huaiqing, 2015. "Which stocks are profitable? A network method to investigate the effects of network structure on stock returns," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 436(C), pages 224-235.

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