The Linear Relationship Model with LASSO for Studying Stock Networks
The correlation-based network is a powerful tool to reveal the influential mechanisms and relations in stock markets. However, current methods for developing network models are dominantly based on the pairwise relationship of positive correlations. This work proposes a new approach for developing st...
| Main Authors: | , , , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
MDPI AG
2022-06-01
|
| Series: | Entropy |
| Subjects: | |
| Online Access: | https://www.mdpi.com/1099-4300/24/6/808 |
| _version_ | 1797487671756455936 |
|---|---|
| author | Muzi Chen Hongjiong Tian Boyao Wu Tianhai Tian |
| author_facet | Muzi Chen Hongjiong Tian Boyao Wu Tianhai Tian |
| author_sort | Muzi Chen |
| collection | DOAJ |
| description | The correlation-based network is a powerful tool to reveal the influential mechanisms and relations in stock markets. However, current methods for developing network models are dominantly based on the pairwise relationship of positive correlations. This work proposes a new approach for developing stock relationship networks by using the linear relationship model with LASSO to explore negative correlations under a systemic framework. The developed model not only preserves positive links with statistical significance but also includes link directions and negative correlations. We also introduce blends cliques with the balance theory to investigate the consistency properties of the developed networks. The ASX 200 stock data with 194 stocks are applied to evaluate the effectiveness of our proposed method. Results suggest that the developed networks not only are highly consistent with the correlation coefficient in terms of positive or negative correlations but also provide influence directions in stock markets. |
| first_indexed | 2024-03-09T23:52:00Z |
| format | Article |
| id | doaj.art-d282f12b94984dbc9b12ce38cdbfc723 |
| institution | Directory Open Access Journal |
| issn | 1099-4300 |
| language | English |
| last_indexed | 2024-03-09T23:52:00Z |
| publishDate | 2022-06-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Entropy |
| spelling | doaj.art-d282f12b94984dbc9b12ce38cdbfc7232023-11-23T16:33:29ZengMDPI AGEntropy1099-43002022-06-0124680810.3390/e24060808The Linear Relationship Model with LASSO for Studying Stock NetworksMuzi Chen0Hongjiong Tian1Boyao Wu2Tianhai Tian3School of Management Science and Engineering, Central University of Finance and Economics, Beijing 102206, ChinaDepartment of Mathematics, Shanghai Normal University, Shanghai 200234, ChinaSchool of Banking and Finance, University of International Business and Economics, Beijing 100029, ChinaSchool of Mathematics, Monash University, Clayton, VIC 3800, AustraliaThe correlation-based network is a powerful tool to reveal the influential mechanisms and relations in stock markets. However, current methods for developing network models are dominantly based on the pairwise relationship of positive correlations. This work proposes a new approach for developing stock relationship networks by using the linear relationship model with LASSO to explore negative correlations under a systemic framework. The developed model not only preserves positive links with statistical significance but also includes link directions and negative correlations. We also introduce blends cliques with the balance theory to investigate the consistency properties of the developed networks. The ASX 200 stock data with 194 stocks are applied to evaluate the effectiveness of our proposed method. Results suggest that the developed networks not only are highly consistent with the correlation coefficient in terms of positive or negative correlations but also provide influence directions in stock markets.https://www.mdpi.com/1099-4300/24/6/808stock relationship networklinear relationship modelLASSOnegative correlation |
| spellingShingle | Muzi Chen Hongjiong Tian Boyao Wu Tianhai Tian The Linear Relationship Model with LASSO for Studying Stock Networks Entropy stock relationship network linear relationship model LASSO negative correlation |
| title | The Linear Relationship Model with LASSO for Studying Stock Networks |
| title_full | The Linear Relationship Model with LASSO for Studying Stock Networks |
| title_fullStr | The Linear Relationship Model with LASSO for Studying Stock Networks |
| title_full_unstemmed | The Linear Relationship Model with LASSO for Studying Stock Networks |
| title_short | The Linear Relationship Model with LASSO for Studying Stock Networks |
| title_sort | linear relationship model with lasso for studying stock networks |
| topic | stock relationship network linear relationship model LASSO negative correlation |
| url | https://www.mdpi.com/1099-4300/24/6/808 |
| work_keys_str_mv | AT muzichen thelinearrelationshipmodelwithlassoforstudyingstocknetworks AT hongjiongtian thelinearrelationshipmodelwithlassoforstudyingstocknetworks AT boyaowu thelinearrelationshipmodelwithlassoforstudyingstocknetworks AT tianhaitian thelinearrelationshipmodelwithlassoforstudyingstocknetworks AT muzichen linearrelationshipmodelwithlassoforstudyingstocknetworks AT hongjiongtian linearrelationshipmodelwithlassoforstudyingstocknetworks AT boyaowu linearrelationshipmodelwithlassoforstudyingstocknetworks AT tianhaitian linearrelationshipmodelwithlassoforstudyingstocknetworks |