"Islamic Finance Researches" (IFR)

Portfolio Management Based on the Topology of the Iranian Stock Market Network

Document Type : Science - Research (Islamic Capital Market)

Authors

1 Ph.D. Candidate, Islamic Azad University (Central Tehran Branch), Tehran, Iran

2  Assistant Professor of Financial Management, Islamic Azad University (Central Tehran Branch), Tehran, Iran.

3 Assistant Professor of Financial Management (Central Tehran Branch), Tehran, Iran.

Abstract

The stock market is a complex financial system with heterogeneous members; it can produce huge amounts of data. It is clear that analyzing this huge data and inferring practical results from that creates a significant competitive advantage for its participants. One method of analyzing financial market data expanded significantly after the global financial crisis is complex network-based analysis that considers the structure of interdependencies of a system's members. Therefore, the current study analyzes the Iranian stock market using the graph theory in mathematics. First, the correlation network of stock market groups is constructed in three time scales of daily, seasonal and annual, and then their topology will be compared. In the next stage, using the centrality indexes in the graph theory, the importance of each market group is calculated and the groups are ranked in the network. The results of this study have significant implications for market participants and regulators for making investment decisions, regulating and controlling risk.

Keywords

اسماعیل‌پورمقدم، هادی؛ محمدی، تیمور؛ فقهی‌کاشانی، محمد؛ و شاکری، عباس (1398). رشد بخشی و مرکزیت در بازار سهام ایران: کاربرد تحلیل شبکه‌های پیچیده. فصلنامه پژوهش‌ها و سیاست‌های اقتصادی، 27(90)، 241-313.
شریفی‌سامانی، فرشاد (1395). ویژگی‌های توپولوژیکی شبکه سهام در بازار بورس اوراق بهادار تهران (مطالعه موردی اثر برجام). (پایان‌نامه کارشناسی ارشد)، دانشگاه علم و هنر، یزد، ایران.
صداقتی، صمد (1399). پویایی توپولوژیکی و سرایت در بازارسهام ایران (رساله دکتری). دانشگاه آزاد واحد تهران مرکز، تهران، ایران.
Acemoglu, D., Ozdaglar, A., & Tahbaz-Salehi, A. (2015). Systemic Risk and Stability in Financial Networks. American Economic Review, 105(2), 564-608.
Allen, F., & Babus, A. (2009). Networks in Finance. The Network Challenge: Strategy, Profit, and Risk in an Interlinked world, 367.
Allen, F., & Gale, D. (2000). Financial contagion. Journal of Political Economy, 108(1), 1-33.
Battiston, S., Caldarelli, G., May, R. M., Roukny, T., & Stiglitz, J. E. (2016). The Price of Complexity in Financial Networks. Proceedings of the National Academy of Sciences, 113(36), 10031-10036.
Bech, M. L., & Atalay, E. (2010). The Topology of the Federal Funds Market. Physica A: Statistical Mechanics and its Applications, 389(22), 5223-5246.
Bech, M. L., Chapman, J. T., & Garratt, R. J. (2010). Which Bank is the “Central” Bank?. Journal of Monetary Economics, 57(3), 352-363.
Berndsen, R. J., León, C., & Renneboog, L. (2018). Financial Stability in Networks of Financial Institutions and Market Infrastructures. Journal of Financial Stability, 35, 120-135.
Billio, M., Getmansky, M., Lo, A. W., & Pelizzon, L. (2012). Econometric Measures of Connectedness and Systemic Risk in the Finance and Insurance Sectors. Journal of Financial Economics, 104(3), 535-559.
Chi, K. T., Liu, J., & Lau, F. C. (2010). A Network Perspective of the Stock Market. Journal of Empirical Finance, 17(4), 659-667.
Elliott, M., Golub, B., & Jackson, M. O. (2014). Financial Networks and Contagion. American Economic Review, 104(10), 3115-53.
Gabrieli, S. (2011). The Microstructure of the Money Market Before and After the Financial Crisis: a Network Perspective. CEIS Tor Vergata Research Paper Series, 9(1), 181.
Krehbiel, T. C. (2004). Correlation Coefficient Rule of Thumb. Decision Sciences Journal of Innovative Education, 2(1), 97-100.
Lee, T. K., Cho, J. H., Kwon, D. S., & Sohn, S. Y. (2019). Global Stock Market Investment Strategies Based on Financial Network Indicators Using Machine Learning Techniques. Expert Systems with Applications, 117, 228-242.
Majapa, M., & Gossel, S. J. (2016). Topology of the South African Stock Market Network Across the 2008 Financial Crisis. Physica A: Statistical Mechanics and its Applications, 445, 35-47.
Rogers, L. C., & Veraart, L. A. (2013). Failure and Rescue in an Interbank Network. Management Science, 59(4), 882-898.
Roukny, T., Battiston, S., & Stiglitz, J. E. (2018). Interconnectedness as a Source of Uncertainty in Systemic risk. Journal of Financial Stability, 35, 93-106.
Xu, R., Wong, W. K., Chen, G., & Huang, S. (2017). Topological Characteristics of the Hong Kong Stock Market: A Test-Based p-Threshold Approach to Understanding Network Complexity. Scientific Reports, 7(1), 1-16.
Volume 10, Issue 1 - Serial Number 19
November 2020
Pages 151-186
  • Receive Date: 28 December 2020
  • Revise Date: 20 May 2021
  • Accept Date: 21 May 2021