Research on the Dynamic Characteristics of System Resonance and Contagion Effect of Shanghai A-Shares

Abstract

The interactive effect is significant in the Chinese stock market, exacerbating the abnormal market volatilities and risk contagion. This paper divides the 2005–2018 daily returns of the Shanghai Stock Exchange (SSE) into eight bull and bear market stages to measure the relationships between different stocks via Lasso methods. We construct the stock resonance network and use the Map Equation method to analyze the differentiation characteristics of modules in the resonance effect. First, the empirical result shows that SSE A-shares have a stronger resonance effect in bear markets than in bull markets, and the resonance effect aggravates abnormal stock market fluctuations. Second, SSE A-shares have a system module resonance effect in the first four stages, and the industry differentiation and clustering contagion phenomena begin to appear in the last four stages. Third, core leading stocks are medium and small-cap stocks with lower market values in terms of financial. Lowed-valued stocks are more sensitive to funds and financial conditions especially in bull and bear markets, resulting in their leading positions in the market. This conclusion can provide not only guidance for investment strategies but also supply a reference for the risk contagion monitoring of regulators.