On The Contagion Of Stock-market Risks Under The Condition Of Holding Leveraged Funds Based On The Perspective Of Random Networks

Since July 2014,Chinese stock market has experienced a unprecedented volatility.On June 12,2015,the Shanghai composite index reached the peak value—5178.79 point in seven years.However,when the regulators strengthen to clear the leveraged funds in stock market in next two months,combined with the market liquidity dring up,the Shanghai composite index plunged to 2850.37 points in August 26,2016.To think about the reason of this round of the stock market volatility and the large scale crisis and spread in stock market,the use of leverage tools in stock market is one of the crucial factors.This paper constructed a random network model to simulate the contagion of the stock market crisis,when the stock market in the presence of different leverage(capital).Through continuous adjustment of the model and the institutions' leverage ratio,we can observe the change of probability of the overall collapse.From the simulation of random network model,we can get the following conclusions: As the leveraged funds reducing gradually,the possibility of the cascade of the stock market is reducing gradually.The results prove that lowering the leverage could help improve the stability of the stock system and it is a powerful protection against the external shocks.In stock market network,different leverage ratios and the probability of collapse of the whole market presents a correlation relationship.That is to say,when the leveraged funds held by institutions drops,as a certain external shocks,the probability of stock market crisis and cascade is reducing.In the practical sense,the Government maintains market leverage ratio in the stock market last year,which has an abyss of significance to maintain the long-term stable development of the stock market and to avoid the systemic financial crisis.In the part of the empirical analysis of stock market crisis contagion,in consideration of 2015 market volatility in stock market of China,we select several sets of data,including Financing Lending,Shanghai composite index,China fund total index,Stock funds index,Hybrid funds index and Bond funds index.We get the following three conclusions:(1)From E-garch model analysis,these four sets of data are showing a "Leverage effect".The index of first four sets of data show a greater volatility when the regulator clean the leverage funds in the stock market.And the final data presents a greater impact in the volatility as for the positive information.(2)From Granger causality analysis,we obtain the data of China fund total index,Stock funds index,Hybrid funds index impacted Shanghai stock index in this period time.When the stock market volatilities,Financing Lending and Stock funds index shows a greater linkage effect to other index.Meanwhile,Bond funds index did not present Granger causality to other index.(3)Through the pulse impact analysis,we obtain when a stock value in a large volatility,it will spread to other institutions which hold the same stock.At the same time,due to the stock is not the scope of the Bond fund index's investment,the stock market volatility does not have a strong impact.Empirical results supports above theory result that when different institutions in network hold the same asset,they will be infected each other when the assets suffer a strong hitting in network.