Analyzing the Hong Kong Stock Market Structure: A Complex Network Approach

Abstract

This article develops a stock network by investigating 1065 stocks’ return rate series under Hong Kong stock market from November 2011 to February 2015. Regarding individual stocks as nodes and the corresponding correlation of return rate series as edges, the stock network depicts the topologic structure of the large scale of stocks under main board of Hong Kong Equity Securities. Specially, various thresholds are chosen to compare the network features. A number of network methods were used to examine the topological structure of the stock market, which include degree distribution, clustering coefficient and component structure. The empirical result suggests that Hong Kong stock network subjects to power-law distribution, and that there are only a little amount of stocks that perform large impact on the whole market in a price fluctuation sense. More specially, the stocks with largest impact are identified via the calculation of average strength of node, most of which are listed companies in pillar industries. However, most of the stocks have modest impact on the whole market. It is so far the largest scale stock network in Hong Kong financial market. This study provides a topologic analysis for series correlation research of stock market.

Keywords: network; stock market; node strength; power-law distribution

JEL Classification: C49, G19