Network of listed companies based on common shareholders and the prediction of market volatility

In this paper, we build a network of listed companies in the Chinese stock market based on common shareholding data from 2003 to 2013. We analyze the evolution of topological characteristics of the network (e.g., average degree, diameter, average path length and clustering coefficient) with respect to the time sequence. Additionally, we consider the economic implications of topological characteristic changes on market volatility and use them to make future predictions. Our study finds that the network diameter significantly predicts volatility. After adding control variables used in traditional financial studies (volume, turnover and previous volatility), network topology still significantly influences volatility and improves the predictive ability of the model.