Identification of Information Networks in Stock Markets

Trade synchronization and social ties in stock markets

“…Moreover, if two investors synchronize their transactions, it does not necessarily mean that they have been exchanging information. For example, both investors can react to public news similarly [9], they may have developed similar trading strategies or consult the same financial advisors.…”

“…With an increasing interest in network science applications in the financial domain (see, e.g., [34][35][36]), several techniques have been introduced to identify trade and portfolio similarities between investors [8,9,16,33,37]. Among O(N 2 ) investor pairs, one would want to focus only on meaningful similarities.…”

“…The data contains information about transaction date, price, volume, security ID, the postal code, year of birth, and gender of the investor. These data have been extensively used in the literature over two decades [9,16,40,41]. (ii) Insiders' mandatory notifications of trade in the HSE from 2005 to 2010 and from 2013 to 2018 for 153 companies.…”

“…To understand whether there is a qualitative difference between the social connections over which investors synchronize and do not synchronize their trades, we define the reference set of links as CON-NSYNC = (i, j) | ∃k ∈ I m (i, k) ∈ CON-SYNC ∩ (i, j) ∈ CON\SYNC . (9) The reference set CON-NSYNC includes pairs of investors where one of the investors synchronizes trades with at least one social connection and the second investor is socially 9)) and CON-SYNC (Eq. ( 8)) sets (Panel A), and CON-NSYNC * (Eq.…”

“…Nevertheless, the diffusion of private information and its consequences have been investigated from different points of view with direct and indirect observations. There is evidence of a strong association between day traders' instant messaging and trade synchronization [7], inside information transfer and illegal trading [6], and investor's centrality in an investor network and its relation to profit-making [8,9]. The strength of the investor network links and, at the same time, information channels are affected by investors' socioeconomic attributes, such as age, language, and geographical distance (see, e.g., [6,10,11]).…”