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The dynamic relationship between internet attention and stock market liquidity: A thermal optimal path method

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  • Gao, Yang
  • Zhao, Kun
  • Wang, Chao
  • Liu, Chao

Abstract

Financial theory holds that attention plays a significant role in the information response, and internet attention has been used widely to explore their influence on stock market microstructure. Based on the thermal optimal path method and social network data, this paper constructs two dynamic variables including investor and media attention reflecting the internet attention and examines the lead–lag relationship between the internet attention and market liquidity measures. Furthermore, the sample is further divided into three parts including stationary and fluctuation periods to explore the predictive ability of internet attention effects on Chinese stock market liquidity. The main results reveal that the lead–lag orders between the internet attention and market liquidity are not always positive or negative. In other words, the internet attention does not always dominate the stock market liquidity, and vice versa. Moreover, there are significant differences in the results of lead–lag orders between three different subsample periods. The empirical results confirm that internet attention facilitates forecasting market performance in the Chinese stock market, and supplements the relevant theories of stock market trading and behavioral finance from the perspective of econophysics.

Suggested Citation

  • Gao, Yang & Zhao, Kun & Wang, Chao & Liu, Chao, 2020. "The dynamic relationship between internet attention and stock market liquidity: A thermal optimal path method," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 550(C).
    • Handle: RePEc:eee:phsmap:v:550:y:2020:i:c:s0378437120300261
    DOI: 10.1016/j.physa.2020.124180
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