Network Effects Of Exogenous Shocks On Stock Market

With the gradual improvement and development of social network theory,economists began to try to conduct more in-depth research on economic problems from the perspective of network.In the early stage,Granovetter found that the weak relationship of social network could affect the information transmission in the labor market.Up to now,the research ideas and analysis methods of social networks have been extended to financial risk,market competition,enterprise marketing,agriculture and other economic fields.At first,mainstream economics did not pay much attention to social network theory.Because economic research often depicted microscopic individuals in the economy with homogeneity,that is,the behavior of other individuals was described through representative individuals,which constituted one of the basic assumptions of general equilibrium theory.In recent years,however,some studies have shown that individuals who embedded external network by in participating economic activities has very important economic significance.For example,enterprises participate in market activity embedded in the cross-shareholding network,guarantee network,interlocking director network and other external networks.These networks in turn act on the performance,investment efficiency and stock price linkage of enterprises.More importantly,the network also plays an important role in the economic volatility caused by shocks.In particular,the outbreak of the financial crisis in 2008 posed a major challenge to the traditional economic theory.Economists represented by Acemoglu et al.introduced the research ideas of network to explore the root cause of the outbreak of crisis and found that the conduction energy of micro heterogeneity shocks in the power-law network was transformed into larger economic fluctuations,which provided a micro basis for the theory of macroeconomic fluctuations from the perspective of network.Since then,more and more studies show that the role of the network can not be underestimated and ignoring the role of network will easily lead to great deviation between the research results and the reality.This has very important practical significance in policy implementation and so on.Once the policy makers ignore the role of the network,they will underestimate the impact of the policy,which will lead to great economic fluctuations after the implementation of the policy.Therefore,the study of the interaction between shock and network has important theoretical value and practical significance.On the basis of reviewing relevant literature,it is found that the existing literature shows that network effect can not be underestimated,and ignoring network effect will lead to a great deviation between the obtained research results and the reality.However,the research on the interdiscipline of network and economics is still in the exploratory stage,and there are many research gaps.Therefore,most of the previous literature only focused on the direct effect of shocks on the stock market,and few studies on this issue were conducted with the combination of network.Based on this,this paper attempts to further improve the research on the network effect of exogenous shocks on the stock market.By constructing the cross-shareholding network and the input-output network,this paper empirically analyzes how the network structure and network conductivity affect the effect of exogenous shocks on the market value of companies.In Chapter 3 and Chapter 4,this paper discusses the impact of monetary policy impact and the structural characteristics of the cross-shareholding network on the market value of listed companies.Among them,Chapter 3 analyzes how the impact of monetary policy shocks and the network centrality,the most representative of the crossshareholding network,affects the market value of listed companies.Firstly,the paper constructs the cross-shareholding network of Chinese A-share listed companies,and studies the effect of monetary policy impact and in-degree centrality of nodes.Secondly,the effects of impact strength and the risk of the nodes on this effect are discussed respectively.Finally,the paper analyzes the transmission channels of the impact of monetary policy shocks and network centrality on stock market.Chapter 4 studies how the power law distribution of cross-shareholding network influences the effect of monetary policy shocks on the market value of listed companies.Firstly,the in-degree distribution characteristics of the cross-shareholding network are observed by drawing and the corresponding network distribution shape parameters are calculated.Secondly,combined with the financial data of listed companies,this paper analyzes the impact of the shock of monetary policy and the power law distribution of the network on the market value of listed companies.Finally,the paper studies the transmission channels of the influence of monetary policy and the cross-shareholding network power law distribution on the capital market.In Chapter5,6,and 7,this paper discusses how the input-output network transits and amplifies the effects of monetary policy shocks,’Stop Work Order’ policy shock,and China-United States trade war shock on the stock market.Chapter 5 studies the impact of monetary policy shock transmission in the input-output network on the market value of listed companies.Firstly,an industry-level input-output network is established based on China’s input-output data,and the impact effect of monetary policy shocks transmitted in the input-output network on the network demand of various industries is measured.Secondly,we empirically analyze the direct and indirect network effects of monetary policy shocks on the market value of companies.In addition,this paper further discusses the heterogeneity between growth companies and non-growth companies.Chapter 6 studies analyzes how the impact of production restriction on specific industries is transmitted to non-restricted industries through the input-output network,and studies the direct and indirect network effects of ’Stop Work Order’ on the market value of listed companies in China in 2017 from the perspective of network.In addition,the paper also makes a comparative analysis of the one-size-fits-all production limitation and the production limitation according to local conditions.Chapter 7 studies the mechanism of the impact of the trade war between China and the United States from the product market to the stock market.Then it distinguishes the different impacts of the trade war initiated by the United States and the counter-war initiated by China on the stock market,and to further study the time effect of the two events.In addition,this chapter also discusses the heterogeneity of corporate performance and size.Through the above empirical analysis,the following conclusions are drawn.Chapter 3 research results show that:First,the impact of monetary policy shock is affected by the centrality of the cross-shareholding network,and the nodes located in the center of the cross-shareholding network have more advantages than the nodes located in the edge of the network.On the one hand,the in-degree centrality of listed companies in the cross-shareholding network can promote the increase of their market value.On the other hand,the network gives central status node the function of resisting exogenous shocks,which can significantly reduce the negative effect of tight monetary policy shocks on company market value.This effect is only effective under the condition of weak shocks,while strong shocks will make this effect ineffective.Second,network centrality shows a double-edged sword effect on nodes with different risks.Network centrality is not beneficial to all.For high-risk companies,their centrality in the network can not significantly promote the increase of the market value of the company,but will amplify the negative effect of shocks on the market value of the company.Third,investor sentiment,as an intermediary variable,conducts the impact of shocks and network centrality on company market value,and monetary policy shocks participate in the adjustment of the path before the intermediary process.Chapter 4 research results show that:Firstly,the distrubtion of in-degree of China’s first-order and second-order cross-shareholding networks conforms to power law distribution.The heavy tail of the power law distribution of in-degree of the network has a double-edged sword effect on the market value of the company.That is the ’warming effect of the group’ which promotes the increase of the market value of the company,and the ’trouble not of one’s own making’ effect,which amplifies the impact of suppressing the market value of the company.Second,when the monetary policy impact is weak,the power law network only shows the ’warming effect of the group’,but the ’trouble not of one’s own making’ effect is not significant.When the monetary policy impact is strong,the ’warming effect of the group’ of the power law network is not significant,but only the’trouble not of one’s own making’ effect that amplifies the impact of the shock.Third,the cascading effect of the second-order interconnection amplifies the effect of ’warming effect of the group’ and the ’trouble not of one’s own making’ effect,and it magnifies the effect of the ’warming effect of the group’ especially.Fourth,investor sentiment,as an intermediary variable,conducts the impact of interaction between shocks and power-law network on the market value of companies,and monetary policy shocks participate in the adjustment of the path before the intermediary process.Chapter 5 research results show that:The tightening monetary policy not only has a direct negative impact on the market value of listed companies,but also carries out transmission among industries through the input-output network.Therefore,it amplifies the negative effect of monetary policy impact on the market value of companies,and the degree of amplification is positively related to the industry’s investment in the network.The more the industry of a company directly and indirectly invests in other industries,the stronger the cumulative effect of negative demand shocks on the industry and the stronger the negative effect on the market value of the company.Therefore,the impact of monetary policy on different industries is different.In addition,the impact of input-output network transmission has a more significant impact on the listed companies in the growth stage.Specifically,the companies with higher growth rates of total assets and operating profit will be significantly affected by the indirect negative impact.Chapter 6 research results show that:First,adopting a one-size-fits-all production limit-and-shutdown policy will not have a significant negative effect on the market value of companies at the individual level,while the impact at the industry level will significantly promote the increase of the market value of companies in the industry with production restriction.Second,the industry impact of the production limit-and-shutdown policy will spread through the input-output network and form the network demand shock effect transmitted to the upstream and the network supply shock effect transmitted to the downstream,resulting in the negative effect of the superposition of the two network shock effects on the market value of companies in all industries.Third,compared with the onesize-fits-all production limit-and-shutdown policy,the implementation of production restriction policy based on local conditions will weaken the negative effect of the impact of production restriction on the stock market.Chapter 7 research results show that:First,the imposition of tariffs by the United States has a direct negative effect on the stock prices of listed companies in corresponding industries in China,and at the same time,the tax has formed a negative demand shock and a positive supply shock in the production link.The negative demand shock affects the stock price decline of the upstream industry companies through the input-output network,while the positive supply shock affects the stock price rise of the downstream industry companies through the input-output network.On average,the effect of demand shock is stronger than supply shock.Therefore,the imposition of additional tariffs by the United States led to a large range of stock price drops in China’s stock market.Second,China’s announcement of tariff countermeasures has a direct positive effect on the stock prices of companies in the affected industries,and also produces a positive demand shock and a negative supply shock.This announcement event is dominated by a positive demand shock,so it has a strong positive impact on China’s securities market.Third,the game of trade war between China and the United States shows different impact time effects.The negative demand impact caused by the announcement of additional tariffs by the United States lasts longer,while the negative demand impact caused by China’s countermeasures is mainly positive demand impact in the early stage,but after the rapid recession,it is mainly negative demand impact caused by the negative market.Fourth,the trade war between China and the United States has a greater impact on the share prices of companies with declining earnings.This paper finds that the centrality and power law distribution characteristics of the cross-shareholding network have double-edged sword effect,and input-output networks have the effect of conducting and amplifying exogenous shocks.The innovation points of this paper are summarized as the following three aspects:First,this paper breaks the assumption of homogenous individuals in traditional economics,and more accurately grasp the effect of exogenous shocks,which provides a new research perspective for future analysis of how exogenous shocks affect the stock market.This paper can make up for the shortcomings of existing studies in this field.Second,this paper studies the mechanism of exogenous shock and different characteristics of network.At present,the number of researches on the network effects of exogenous shocks is limited,and the underlying action rules have not been completely and clearly provided.However,the results of this paper are helpful to clarify the problem.Thirdly,this paper closely combines the exogenous shocks facing China’s development,including the impact of monetary policy,the impact of production restriction and sh utdown policy,and the impact of the Sino-US trade war,which has certain practical significance in understanding and grasping the impact of the shocks on the capital market.Based on the research conclusions of this paper,we get the following enlightenment:First,we should pay attention to the important role of network interaction in preventing and defusing financial risks.By more accurately understanding and grasping the connotation and mechanism of exogenous shocks and network interaction,we can more accurately evaluate the impact of exogenous shocks on economic operation.Second,the relevant departments should strengthen the guidance of China’s listed companies to participate in the cross-shareholding activities,and improve the laws and regulations related to cross-shareholding,both to encourage appropriate and ensure the supervision according to law.Third,the monetary authorities should pay enough attention to the network interaction in the formulation of monetary policies,adopt a more prudent attitude,avoid the operation mode of sweeping changes,grasp the influence degree of monetary policies from the network perspective,and prevent the possibility of increasing financial risks caused by the network magnifying the impact effect of policies.Fourth,when carrying out environmental protection remediation through mobilized governance means,their policies need to be more prudent attitude,fully considering the amplification effect of the policy network,starting from the global assess the effect of policy,particularly tricky one-size-fits-all too radical policies and measures,try to avoid have greater impact on the financial system.Fifth,China is facing a lot of internal and external challenges at present,so we should be more cautious about the Black Swan event.In particular,we need to be aware of whether the network amplification of the Black Swan event will lead to the risk of a big earthquake in the stock market,and strive to maintain the health,stability and development of the financial system.