The structure of stock markets as signed networks

Abstract

Dynamism and evolution in financial markets and specifically stock markets represents a complex network with many relations between different finance agents and corporations. So there are many researches analyzing different aspects of stock markets in the field of complex networks. However, studying financial markets as signed networks maybe considered as a new perspective in this area. This paper proposes a new methodology for analyzing structure of stock markets as signed networks in the perspective of balance theory. For this purpose, some stock markets based on some data of Tehran stock market and Nasdaq are modeled as signed networks and some aspects of their structural properties were studied from the point of view of balance theory. The results show the whole pattern of the structure of stock networks approximately fit to a completely balanced structure. It is observed that the distance from structural balance rises abruptly in some unstable duration and so may be proposed as an index for forecasting overall function of stock markets or crisis conditions. The results also imply the existence and role of positive connection between two balanced partitions. The proposed methodology can lead directly to many applications in analyzing, evaluating and forecasting stock markets such as balanced clustering and determining the important companies and relations affecting the overall system function. The applications could be useful for system control and decisions either in micro level such as portfolio investment or macro level and regulating the market.