Risk-dependent centrality in the Brazilian stock market

TL;DR

This paper introduces a risk-dependent centrality measure for the Brazilian stock market, showing how asset rankings vary with external risk and crisis events, and linking ranking volatility to market returns.

Contribution

It develops and applies a novel risk-dependent centrality measure to analyze asset importance in the Brazilian stock market during different risk levels and crises.

Findings

Asset rankings depend on external risk levels.

Ranking volatility increases during crisis periods.

Negative correlation between ranking volatility and market returns.

Abstract

The purpose of this paper is to calculate the risk-dependent centrality (RDC) of the Brazilian stock market. We computed the RDC for assets traded on the Brazilian stock market between January 2008 to June 2020 at different levels of external risk. We observed that the ranking of assets based on the RDC depends on the external risk. Rankings' volatility is related to crisis events, capturing the recent Brazilian economic-political crisis. Moreover, we have found a negative correlation between the average volatility of assets' ranking based on the RDC and the average daily returns on the stock market. It goes in hand with the hypothesis that the rankings' volatility is higher in periods of crisis.