Information Contagion and Stock Price Crash Risk

Lei Zhang, Chao Wang, Hong Yao, Zhibin Wu
2021 Mathematical Problems in Engineering  
We introduce continuity and temporariness into the independent cascade model to depict information diffusion in a social network. Investor behavior changes are determined according to the process of information diffusion, and the investment portfolio model consisting of sentiments is proposed to reveal the fire sales of stocks and the resulting stock price crash risk. Therefore, the relationship between information diffusion and stock price crash risk is established, and the contagion of stock
more » ... contagion of stock price crash risk is analyzed from the perspective of information diffusion. Furthermore, some immunization strategies of networks are compared to prevent stock price crash risk. The results show that the tendency of stock price crash risk is consistent with that of information diffusion, which indicates that information diffusion before the fire sales is the key to triggering stock price crash risk. Moreover, investors with many ties contribute more to information diffusion than others; hence, immunization strategies of networks based on global information are more effective in preventing stock price crash risk than that based on local information. This study provides a new perspective for the study of contagion risk in the stock market, and it hints at the possibility of regulatory intervention to prevent stock price crash risk.
doi:10.1155/2021/8891338 fatcat:jckakdlma5elxicqhyhlfioona