The impact of capital market opening on stock market stability: based on D-MST method complex network perspective

From the perspective of complex network, this paper re-examines the impact of China's capital market opening on its stock market stability. In view of the complex network characteristics of the stock market, this paper proposes a new connected network model named Double Minimum Spanning Tree (D-MST), to model the three markets in Shanghai, Shenzhen and Hong Kong connect network, and then analyze the association networks' topological structure and stability before and after the implementation of the market opening policy, so as to analyze the impact of the stock market stability caused by the capital market opening. From the perspective of complex network aggregation, mainland markets' are higher than Hong Kong, and Shanghai is higher than Shenzhen, and this means the co-movement of Shanghai Stock Exchange Market is higher than the other two markets'. Through complex network stability experiment, this thesis find that market network has robustness to the random strategy and are vulnerability to the deliberate strategy. On the whole, the results show that the opening of the capital market has a positive impact on the stability of the stock market, but there are heterogeneity in the different extent of market promotion, among which the stability of the Shanghai Stock Exchange has the greatest improvement. However, the empirical results also indicate that under extreme market conditions, the opening of capital market will lead to greater systemic destructiveness.

Automated summary

This paper re-examines the impact of China's capital market opening on its stock market stability from the perspective of complex network. It proposes a new connected network model called Double Minimum Spanning Tree (D-MST) to analyze the topological structure and stability of the stock market before and after the implementation of the market opening policy. The results show that the opening of the capital market has a positive impact on the stability of the stock market, with the Shanghai Stock Exchange showing the greatest improvement in stability. However, under extreme market conditions, the opening of capital market can lead to greater systemic destructiveness.