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Investment network and stock’s systemic risk contribution: Evidence from China

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  • Xiang, Youtao
  • Borjigin, Sumuya

Abstract

In this paper, we investigated the effect of network structures on stock’s systemic risk contribution, which measures the connection characteristics of investment network from different aspects. Firstly, we find that network centrality increases systemic risk contribution, and empirical results hold even after controlling for other factors and are also robust to alternate measures. Secondly, this paper further proposes two possible explanations. Specifically, investment network connection could increase the possibility of collusion with firms, facilitate the relevant institutional investors to hollow out the listed company, and firms at the center of network can amplify the sentiment of market participants through the generation and dissemination of information, thereby increasing stock’s systemic risk contribution. Besides, economic policy uncertainty (EPU) could strengthen the positive effect of network centrality on stock’s systemic risk contribution. Finally, we document that other important network features (including structural holes, clustering coefficients, and core-periphery structure) can also increase stock’s systemic risk contribution.

Suggested Citation

  • Xiang, Youtao & Borjigin, Sumuya, 2024. "Investment network and stock’s systemic risk contribution: Evidence from China," The Quarterly Review of Economics and Finance, Elsevier, vol. 94(C), pages 113-132.
    • Handle: RePEc:eee:quaeco:v:94:y:2024:i:c:p:113-132
    DOI: 10.1016/j.qref.2024.01.006
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    More about this item

    Keywords

    Systemic risk contribution; Network topology; Institutional investors; Investor sentiment; Economic policy uncertainty;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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