Global Portfolio Investment Network and Stock Market Co-Movement

Abstract

We construct a global portfolio investment network by employing network analysis and using bilateral cross-border portfolio holdings data and show that a country’s network centrality within this global network has a positive relationship with stock market co-movement. Moreover, network centrality based on total portfolio holdings matters more for stock market co-movement than centrality based on equity linkages alone. In addition, incoming linkages of foreigners investing in a country has a more significant effect on co-movement than outgoing linkages of domestic investors investing in foreign countries.

Keywords: stock market co-movement, connectedness, network analysis

JEL Classification: G150, F65, F360