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Unveiling correlations between financial variables and topological metrics of trading networks: Evidence from a stock and its warrant

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  • Li, Ming-Xia
  • Jiang, Zhi-Qiang
  • Xie, Wen-Jie
  • Xiong, Xiong
  • Zhang, Wei
  • Zhou, Wei-Xing
Abstract
Traders develop and adopt different trading strategies attempting to maximize their profits in financial markets. These trading strategies not only result in specific topological structures in trading networks, which connect the traders with the pairwise buy–sell relationships, but also have potential impacts on market dynamics. Here, we present a detailed analysis on how the market behaviors are correlated with the structures of traders in trading networks based on audit trail data for the Baosteel stock and its warrant at the transaction level from 22 August 2005 to 23 August 2006. In our investigation, we divide each trade day into 48 rolling time windows with a length of 5 min, construct a trading network within each window, and obtain a time series of over 11,600 trading networks. We find that there are strongly simultaneous correlations between the topological metrics (including network centralization, assortative index, and average path length) of trading networks that characterize the patterns of order execution and the financial variables (including return, volatility, intertrade duration, and trading volume) for the stock and its warrant. Our analysis may shed new lights on how the microscopic interactions between elements within complex system affect the system’s performance.

Suggested Citation

  • Li, Ming-Xia & Jiang, Zhi-Qiang & Xie, Wen-Jie & Xiong, Xiong & Zhang, Wei & Zhou, Wei-Xing, 2015. "Unveiling correlations between financial variables and topological metrics of trading networks: Evidence from a stock and its warrant," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 419(C), pages 575-584.
    • Handle: RePEc:eee:phsmap:v:419:y:2015:i:c:p:575-584
    DOI: 10.1016/j.physa.2014.10.039
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