The Emergence of Critical Stocks in Market Crash

Frontiers in Physics

Huiwen Wang¹  Jichang Zhao¹  Shan Lu³ 

[1] Beijing Advanced Innovation Center for Big Data and Brain Computing, Beijing, China;School of Economics and Management, Beihang University, Beijing, China;School of Statistics and Mathematics, Central University of Finance and Economics, Beijing, China;

关键词: network science;    financial system;    risk contagion;    market resilience;    market crash;   

DOI  :  10.3389/fphy.2020.00049

来源: DOAJ

【 摘 要 】

In complex systems like financial market, risk tolerance of individuals is crucial for system resilience. The single-security price limit, designed as risk tolerance to protect investors by avoiding sharp price fluctuation, is blamed for feeding market panic in times of crash. The relationship between the critical market confidence which stabilizes the whole system and the price limit is therefore an important aspect of system resilience. Using a simplified dynamic model on networks of investors and stocks, an unexpected linear association between price limit and critical market confidence is theoretically derived and empirically verified in this paper. Our results highlight the importance of relatively “small” but critical stocks that drive the system to collapse by passing the failure from periphery to core. These small stocks, largely originating from homogeneous investment strategies across the market, has unintentionally suppressed system resilience with the exclusive increment of individual risk tolerance. Imposing random investment requirements to mitigate herding behavior can thus improve the market resilience.

【 授权许可】

Unknown