Stability of China’s Stock Market: Measure and Forecast by Ricci Curvature on Network

Abstract

The systemic stability of a stock market is one of the core issues in the financial field. The market can be regarded as a complex network whose nodes are stocks connected by edges that signify their correlation strength. Since the market is a strongly nonlinear system, it is difficult to measure the macroscopic stability and depict market fluctuations in time. In this article, we use a geometric measure derived from discrete Ricci curvature to capture the higher-order nonlinear architecture of financial networks. In order to confirm the effectiveness of our method, we use it to analyze the CSI 300 constituents of China’s stock market from 2005 to 2020 and the systemic stability of the market is quantified through the network’s Ricci-type curvatures. Furthermore, we use a hybrid model to analyze the curvature time series and predict the future trends of the market accurately. As far as we know, this is the first article to apply Ricci curvature to forecast the systemic stability of China’s stock market, and our results show that Ricci curvature has good explanatory power for the market stability and can be a good indicator to judge the future risk and volatility of China’s stock market.