Lead-lag Relationships And Leading Stock Effect

In the stock market,as a special cross-correlation relationship,the relationship of lead-lag has attracted more and more scholars',attention.Leading stock effect is a specific manifestation of the lead-lag relationship in China's A-share market,that is,a plate often has one or more stocks ahead of other stocks,driving the overall rise or fall of the plate.In the past literature,the research on the leading stock effect may not be comprehensive enough.But for investors,they may easily abuse and misuse the effect of leading stock due to the lack of effective tools to identify leading stock.Therefore,this paper studies how to identify the leading stocks in the plate according to the lead-lag relationship,and tests whether the leading stock effect is really valid and has a significant predictive effect on the lagging stocks.This paper firstly introduces how to use LLR index to distinguish the lead-lag relationship between stocks,then uses two different indicators to make statistics on the LLR index of each stock in the plate,identifies the top 10%stocks as the leading stocks according to the index ranking.Secondly,this paper uses R~2 and dummy variable accuracy as dependent variables to test whether the leading stock has significant forecasting effect on lagging stock.The test results of the two models are significant,which shows that the leading stock effect exists and can predict other stocks in the plate.Finally,based on the leading stock effect,we designs the trading strategy to test the performance,which shows that leading stock effect has investment value.Based on the conclusions drawn in this paper,it is suggested that investors use LLR lead-lag model to identify leading stocks and design investment strategies.For the government,we should attach importance to the leading stock effect and use LLR leading lag model to evaluate the risks which is brought by the market leading stock effect.