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Entropy 2019, 21(3), 248; https://doi.org/10.3390/e21030248

Structural Change and Dynamics of Pakistan Stock Market during Crisis: A Complex Network Perspective

School of Finance and Economics, Jiangsu University, Zhenjiang 212013, China
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Received: 1 February 2019 / Revised: 1 March 2019 / Accepted: 3 March 2019 / Published: 5 March 2019
(This article belongs to the Section Complexity)
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Abstract

We studied the cross-correlations in the daily closing prices of 181 stocks listed on the Pakistan stock exchange (PSX) covering a time period of 2007–2017 to compute the threshold networks and minimum spanning trees. In addition to the full sample analysis, our study uses three subsamples to examine the structural change and topological evolution before, during, and after the global financial crisis of 2008. We also apply Shannon entropy on the overall sample to measure the volatility of individual stocks. Our results find substantial clustering and a crisis-like less stable overall market structure, given the external and internal events of terrorism, political, financial, and economic crisis for Pakistan. The subsample results further reveal hierarchal scale-free structures and a reconfigured metastable market structure during a postcrisis period. In addition, time varying topological measures confirm the evidence of the presence of several star-like structures, the shrinkage of tree length due to crisis-related shocks, and an expansion in the recovery phase. Finally, changes of the central node of minimum spanning trees (MSTs), the volatile stock recognition using Shannon entropy, and the topology of threshold networks will help local and international investors of Pakistan Stock Exchange limited (PSX) to manage their portfolios or regulators to monitor the important nodes to achieve stability and to predict an upcoming crisis. View Full-Text
Keywords: complex network; stock correlation network; Shannon entropy; threshold network; minimum spanning tree; crisis; Pakistan stock exchange complex network; stock correlation network; Shannon entropy; threshold network; minimum spanning tree; crisis; Pakistan stock exchange
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Memon, B.A.; Yao, H. Structural Change and Dynamics of Pakistan Stock Market during Crisis: A Complex Network Perspective. Entropy 2019, 21, 248.

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