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"The Roller Conduction Effect: Evidence from A-Share Data"
This study empirically analyzes the existence of the Roller Conduction Effect in the Chinese A-share market, focusing on digital consumption trends and valuation cycles in the post-pandemic economic recovery.

What is the Roller Conduction Effect?

The Roller Conduction Effect describes a sequential capital rotation phenomenon where:

1. Limited capital exists in the market.

2. One sector's rise triggers capital inflows into another, creating a cyclical uptrend.

3. Not all sectors rise simultaneously—there is a time lag in sectoral uptrends.

4. Psychological factors (e.g., hot money and retail investor sentiment) accelerate this cycle.

Example (From This Study)

• During post-pandemic consumption recovery:

  • Digital consumption stocks rose first as leaders of the upgrade cycle.

  • Traditional consumer goods stocks followed as capital rotated into them.

1. Research Objectives

• Examine capital rotation patterns across different consumption sectors and introduce a new classification framework for sensory-based consumption.

• Analyze whether digital consumption acts as an upgrade driver and receives higher valuations, interpreting the Roller Conduction Effect through temporal and spatial transmission.

• Identify distinct rotational patterns in stock market capital movements and provide insights for investment strategy formulation.

2. Research Methodology

• Collected A-share stock data (Shanghai Composite Index, Shenzhen Component Index, GEM Index, STAR 50 Index) from January to April 2022.

• Analyzed digital consumption as a consumption upgrade tool and assessed higher valuation targets.

• Applied electrical circuit energy transfer models to compare relationships within economic systems.

• Used the Coupling Coordination Degree Model (CCDM) to quantify correlations and interdependencies between systems.

3. Key Findings

Roller Conduction Effect Confirmed:

• Data analysis confirmed the presence of the Roller Conduction Effect in the A-share market, where the rise of one industry sequentially drives capital inflows into others.

Capital Flow Patterns:

• The effect is most pronounced in stock capital movements, where funds first flow into Shanghai Composite Index components before rotating into other indices.

Reversal in the STAR 50 Index:

• The STAR 50 Index exhibited a clear reversal trend against the Shanghai Composite Index, suggesting that capital rotated from GEM stocks into STAR 50 stocks.

Low Coupling State:

• As of April 2022, the coupling coordination degree between the STAR 50 Index and other indices was low, indicating:

  • The Roller Conduction Effect emerges during valuation recovery cycles.

  • Capital rotates quickly but without a strong leading trend.

Conclusion

This study empirically validates the existence of the Roller Conduction Effect in the Chinese A-share market, particularly in stock capital flows.
It also highlights the reversal pattern in STAR 50 and its implications for investment strategy formulation.

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