Higher-Order Financial Networks

Abstract

This study examines the role of high-order financial network structures in shaping financial market conditions and guiding portfolio optimization. Our analysis reveals that higher-order interactions among financial assets significantly influence the stability and dynamics of financial markets and serve as crucial indicators for market sentiments. Moreover, we apply information on higher-order network structures to guide portfolio optimization and investment strategies, demonstrating its ability to enhance both market timing and asset allocation. The findings emphasize the importance of incorporating high-order asset interactions into market surveillance when predicting market sentiments. By integrating high-order network information into investment practices, investors can effectively manage risk exposure and enhance overall portfolio performance.

Keywords: Higher-Order Network, Financial Network, Portfolio Optimization, Financial Market State, Trading Strategy

JEL Classification: G10, G11, G15