The Emergence of Critical Stocks in Market Crash

Lu, Shan; Zhao, Jichang; Wang, Huiwen

doi:10.3389/fphy.2020.00049

Cited by 5 publications

(4 citation statements)

References 33 publications

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“…Though market crash in essence originates from failure of these crucial nodes in the core, those with small degrees collapsed at the early stage might be the real triggers. Consisting with the previous study [48], this finding discloses the unexpected role of small-degree stocks in market crash and inspire regulators pay more attention on those conventionally might be overlooked, especially the ones in finance sector.…”

Section: Illiquidity Network and Crashsupporting

confidence: 79%

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The illiquidity network of stocks in China's market crash

Tan¹,

Zhao²

2020

Preprint

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The stock market of China experienced an abrupt crash in 2015 and evaporated over one third of the market value. Given its associations with fear and fine-resolutions in frequency, the illiquidity of stocks may offer a promising perspective of understanding and even signaling the market crash. In this study, by connecting stocks that mutually explain illiquidity fluctuations, a illiquidity network is established to model the market. It is found that as compared to non-crash days, the market is more densely connected on crash days due to heavier but more homogeneous illiquidity dependencies that facilitate abrupt collapses. Critical socks in the illiquidity network, in particular the ones in sector of finance are targeted for inspection because of their crucial roles in taking over and passing on the losing of illiquidity. The cascading failures of stocks in market crash is profiled as disseminating from small degrees to high degrees that usually locate in the core of the illiquidity network and then back to the periphery. And by counting the days with random failures in previous five days, an early single is implemented to successfully warn more than half crash days, especially those consecutive ones at early phase. Our results would help market practitioners like regulators detect and prevent risk of crash in advance.

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Section: Illiquidity Network and Crashsupporting

confidence: 79%

“…The falling-apart of Chinas market in crash was consisted by waves of stocks completely losing illiquidity, i.e., declining to the down limit [48]. These failure waves produced peaks in number of newly failed stocks (see Appendix Figure A3).…”

Section: Illiquidity Network and Crashmentioning

confidence: 99%

The illiquidity network of stocks in China's market crash

Tan¹,

Zhao²

2020

Preprint

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“…Confidence is an individual's evaluation of his or her performance (Yao, Rabbani, 2021). Lu et al (2020) state that market confidence is the most important determinant of risk tolerance. Baeckström et al (2021) expresses that the literature establishes a causal link between a lack of trust and lower risk tolerances.…”

Section: H2: There Is a Positive Relationship Between Phantasy And Pl...mentioning

confidence: 99%

Mediating Effect of Pleasure-Seeking and Loss Aversion in the Relationship Between Phantasy and Financial Risk Tolerance and the Moderating Role of Confidence

Aren,

Hamamci

2023

Folia Oeconomica Stetinensia

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Research background Deciding to trade in financial markets is psychologically difficult and wearing. Investors want to find rational justifications for the correctness of their decisions. However, there is uncertainty in financial markets. This uncertainty does not allow for mathematical calculations. In such case, feelings get involved in the decision process. Purpose This study aimed to investigate the mediating effect of two motivational systems (loss aversion and pleasure-seeking) on the effect of phantasy, which is fantasies that are based on an individual’s early infancy, that develop and exist throughout life, but are not consciously aware of by the individual, on financial risk tolerance, and to analyze the moderating effect of confidence in the effect of these two motivational systems on financial risk tolerance. Research methodology Data were collected from 1,643 subjects from Turkey in November–December 2021 using a questionnaire. The link to the survey prepared by the researchers was created using Google Survey and shared by our graduates’ students on their social networks. Results According to the results, phantasy had a positive and significant effect on both motivational systems and financial risk tolerance. Simultaneously, two motivational systems have a mediating effect on the relationship between phantasy and financial risk tolerance. Confidence, on the other hand, has a moderating effect on the effect of these two motivational systems on financial risk tolerance. In addition, as expected, phantasy showed its effect on all individuals without differing according to demographic variables. Despite this, loss aversion and low financial risk tolerance were higher in female and married individuals. While pleasure-seeking is higher in males, it does not differ according to marital status. Novelty Modeling unconscious processes, motivational systems and individual characteristics such as confidence together will provide important and useful findings for both investors and market authority in terms of showing the effect of unconscious and cognitive factors on financial risk tolerance.

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“…This event underlines the non-negligible roles of the trading behavior, especially when inexperienced investors dominate the market [ 1 ]. A stock market crash is usually triggered by economic events, but it is subsequently led by crowd behavior and psychology such as mimicking trading fashions [ 2 , 3 , 4 ] and severe overlap of portfolios [ 5 , 6 ]. Among these trading behaviors, one of the most important aspects behind the market microstructure is the imbalance of selling and buying parties.…”

Section: Introductionmentioning

confidence: 99%

Trading Imbalance in Chinese Stock Market—A High-Frequency View

Zhao

Wang

2020

Entropy

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Although an imbalance of buying and selling profoundly affects the formation of market trends, a fine-granularity investigation of this perplexity of trading behavior is still missing. Instead of using existing entropy measures, this paper proposed a new indicator based on transaction dataset that enables us to inspect both the direction and the magnitude of this imbalance at high frequency, which we call “polarity”. The polarity aims to measure the unevenness of the very essence trading desire based on the most micro decision making units. We investigate the relationship between the polarity and the return at both market-level and stock-level and find that the autocorrelated polarities cause a positive relation between lagged polarities and returns, while the current polarity is the opposite. It is also revealed that these associations shift according to the market conditions. In fact, when aggregating the one-minute polarities into daily signals, we find not only significant correlations disclosed by the market polarity and market emotion, but also the reliability of these signals in terms of reflecting the transitions of market-level behavior. These results imply that our presented polarity can reflect the market sentiment and condition in real time. Indeed, the trading polarity provides a new indicator from a high-frequency perspective to understand and foresee the market’s behavior in a data-driven manner.

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The Emergence of Critical Stocks in Market Crash

Cited by 5 publications

References 33 publications

The illiquidity network of stocks in China's market crash

The illiquidity network of stocks in China's market crash

Mediating Effect of Pleasure-Seeking and Loss Aversion in the Relationship Between Phantasy and Financial Risk Tolerance and the Moderating Role of Confidence

Trading Imbalance in Chinese Stock Market—A High-Frequency View

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