Companies in the equity market form a complex, ever-evolving network that directly influences stock prices. Our research introduces a novel metric, the Dynamic Network Index (DNI), which leverages a signed graph Laplacian to track changes in equity networks over time. A higher DNI reflects greater shifts in firms' interconnectedness and the overall market structure. Integrating this network factor into standard asset pricing models enhances return predictability, and its effect is not subsumed by established asset pricing factors. Additionally, we find that companies more sensitive to the network factor tend to have lower expected returns. These results hold across multiple statistical tests, highlighting the importance of considering the equity market as an interconnected system rather than a collection of individual stocks.

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