title: Can Network Linkage Effects Determine Return? Evidence from Chinese Stock Market.
abstract: This study used the dynamic conditional correlations (DCC) method to identify the linkage effects of Chinese stock market, and further detected the influence of network linkage effects on magnitude of security returns across different industries. Applying two physics-derived techniques, the minimum spanning tree and the hierarchical tree, we analyzed the stock interdependence within the network of the China Securities Index (CSI) industry index basket. We observed that that obvious linkage effects existed among stock networks. CII and CCE, CAG and ITH as well as COU, CHA and REI were confirmed as the core nodes in the three different networks respectively. We also investigated the stability of linkage effects by estimating the mean correlations and mean distances, as well as the normalized tree length of these indices. In addition, using the GMM model approach, we found inter-node influence within the stock network had a pronounced effect on stock returns. Our results generally suggested that there appeared to be greater clustering effect among the indexes belonging to related industrial sectors than those of diverse sectors, and network comovement was significantly affected by impactive financial events in the reality. Besides, stocks that were more central within the network of stock market usually had higher returns for compensation because they endured greater exposure to correlation risk.
authors.affiliation: College of Finance and Statistics, Hunan University, Changsha, China.
authors.forename: Haishu
authors.initials: H
authors.lastname: Qiao
authors.affiliation: College of Finance and Statistics, Hunan University, Changsha, China.
authors.forename: Yue
authors.initials: Y
authors.lastname: Xia
authors.affiliation: College of Finance and Statistics, Hunan University, Changsha, China.
authors.forename: Ying
authors.initials: Y
authors.lastname: Li
mesh_terms: D000465:Algorithms; D002681:China; D007449:Investments / Q000706:statistics & numerical data*; D018803:Models, Economic; D008962:Models, Theoretical