Network Risk And Stock Returns

Based on the theory of network model,this paper analyses and quantifies the factors of network risk,and verifies the relationship between network risk and stock return.Firstly,this paper constructs a network model based on the input-output table and the industry of stocks,and calculates the centrality of the model,so as to quantify the impact of network risk,and obtains the proxy variable of network risk:the fundamentals centrality(CIO).The industry with higher centrality is in a more central position in the network,which is associated with more industries through transactions,thus assuming greater network risks.In order to explore the relationship between network risk and stock returns,this paper uses ranking method and Fama-Macbeth cross-sectional regression model and chooses stock market value and book-to-market ratio as control variables for analysis.Finally,this paper explores the relationship between the correlation of stock returns,time and distance,and further confirms the cross-sectoral hypothesis of system risk.Through research,this paper draws the following conclusions:(1)China's market network risk exists,and can not be dispersed through diversification.The CIO of network risk proxy variable can quantify this risk factor reasonably.Fundamental centrality has a significant positive correlation with stock returns.The higher the centrality,the greater the amount of transactions with more departments,the greater the impact of shocks from other industries,thus undertaking more systemic risks and obtaining higher excess returns.(2)In recent years,the network risk has increased significantly.With the development of China's stock market,the relationship between stock market and economic fundamentals is increasing.The impact of network risk on stock returns is more significant.(3)Economic shocks transmit along cross-sectoral transactions,showing a diffusion effect;shocks originating in an industry will first affect industries closer to them,and then affect industries farther away,and the impact will be reduced to a certain extent along the course of transaction transmission.