What is it about?

Market value can be considered as a measure of the economic strength of a firm. The value migration network shows how market value flows between companies. This work shows that the topological position in the value migration network, measured using a self-organizing features map, plays a crucial role in determining the stock’s return. Specifically, centrality measures derived from the network, expressing the value flow pattern, are an appropriate indicator of annualized stock returns.

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Why is it important?

Knowledge of how value migrates between companies is the basis of value-based management. One potential application of this work is to support value-based management evaluation tools. The topological position in the value migration network has an opportunity to become a new assessment measure in terms of the efficiency of implementing the concept of value-based management. Companies capable of intercepting the value from other enterprises will be ranked higher on the self-organizing map of network centrality. Consequently, enterprises in the inflow phase achieve higher rates of return on shares, providing a reliable view on the achievement of the company's goal of maximizing the value of the enterprise. A better understanding of the value fluctuation patterns among assets in the network approach can be applied to network-based portfolio selection and risk management. In other words, the value migration network can be an important tool for asset allocation, portfolio and risk management. The map of value migration network can also be useful for managers, board of directors, and investors.


Does value grow on trees? It turns out that yes! Using the minimum spanning tree method, artificial intelligence, and MARS regression, I showed that the topological position in the value migration network has a statistically significant effect on the stock returns. My findings shed new insights on the value migration process observed on the financial market. This study appears to be the first to demonstrate that value migration, measured by means of a self-organizing map based on the centrality measures of the value migration network, plays an important role in determining stock’s return levels.

Dariusz Siudak
Lodz University of Technology

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This page is a summary of: The effect of self-organizing map architecture based on the value migration network centrality measures on stock return. Evidence from the US market, PLoS ONE, November 2022, PLOS,
DOI: 10.1371/journal.pone.0276567.
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