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A complex networks based analysis of jump risk in equity returns: An evidence using intraday movements from Pakistan stock market

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  • Aslam, Faheem
  • Mohmand, Yasir Tariq
  • Aziz, Saqib
  • Ouenniche, Jamal

Abstract

We employ a multi-stage methodology combining complex network analytics and financial risk modelling to unveil the correlation structures amongst the price jump risks of companies forming the KSE-100 index in Pakistan. We identify the most influential companies in terms of jump risk, and identify communities — clusters of companies with similar price movement characteristics or with highly correlated price jumps. We find that equities in Pakistan stock market experience jumps in different time periods that are correlated to varying degrees within and across industries resulting in 19 different communities, four of which are strongly connected. While Oil & Gas, Cement and Banking sectors exhibit a significant representation of firms in communities, the automobile industry, however, seems to play an important role in risk propagation. These results provide an interesting insight to investors and other stakeholders from an emerging market viewpoint identifying the major sectors driving the volatility of KSE-100 index.

Suggested Citation

  • Aslam, Faheem & Mohmand, Yasir Tariq & Aziz, Saqib & Ouenniche, Jamal, 2020. "A complex networks based analysis of jump risk in equity returns: An evidence using intraday movements from Pakistan stock market," Journal of Behavioral and Experimental Finance, Elsevier, vol. 28(C).
    • Handle: RePEc:eee:beexfi:v:28:y:2020:i:c:s2214635020303452
    DOI: 10.1016/j.jbef.2020.100418
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    More about this item

    Keywords

    Complex network analysis; Intraday returns; Realised jumps; Realised volatility; Jump risk;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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