Papers
Topics
Authors
Recent
Search
2000 character limit reached

Statistical Validation of Contagion Centrality in Financial Networks

Published 22 Apr 2024 in q-fin.MF, q-fin.RM, and stat.AP | (2404.14337v2)

Abstract: In this paper, we introduce an impact centrality measure to evaluate shock propagation on financial networks capturing a notion of contagion and systemic risk contributions, permitting comparisons of these risks over time. In addition, we provide a statistical validation method when the network is estimated from data, as is done in practice. This statistical test allows us to reliably assess the computed centrality values. We validate our methodology on simulated data and conduct empirical case studies using financial data. We find that our proposed centrality measure increases significantly during times of financial distress and is able to provide insights into the (market implied) risk-levels of different firms and sectors.

Definition Search Book Streamline Icon: https://streamlinehq.com
References (50)
  1. Networks and the macroeconomy: An empirical exploration. NBER Macroeconomics Annual, 30:273–335.
  2. Systemic risk in derivatives markets: a pilot study using cds data. Bank of England Financial Stability Papers 38, Bank of England.
  3. Organizing the global value chain. Econometrica, 81(6):2127–2204. From March 2013.
  4. On the Measurement of Upstreamness and Downstreamness in Global Value Chains, pages 126–194. Taylor & Francis Group.
  5. Measuring the upstreamness of production and trade flows. American Economic Review, 102(3):412–16.
  6. Distress propagation in complex networks: The case of non-linear debtrank. PLOS ONE, 11(10):1–12.
  7. Leveraging the network: a stress-test framework based on debtrank.
  8. Debtrank: too central to fail? financial networks, the fed and systemic risk. Scientific reports, 2(1):541–541.
  9. Where the risks lie: A survey on systemic risk. Review of Finance, 21(1):109 – 152. Cited by: 193; All Open Access, Bronze Open Access, Green Open Access.
  10. Optimization of fire sales and borrowing in systemic risk.
  11. A dynamic network model of the unsecured interbank lending market. Journal of Economic Dynamics and Control, 90(C):310–342.
  12. Spillover dynamics for systemic risk measurement using spatial financial time series models. Journal of Econometrics, 195(2):211–223.
  13. On the robustness of centrality measures under conditions of imperfect data. Social Networks, 28(2):124–136.
  14. Dynamic social network modelling and analysis: Workshop summary and papers. J. Artificial Societies and Social Simulation, 6.
  15. Assessing contagion risks in the cds market. Financial Stability Review, (17):123–134.
  16. Price Contagion through Balance Sheet Linkages. The Review of Asset Pricing Studies, 5(2):227–253.
  17. Chan-Lau, J. A. (2018). Systemic centrality and systemic communities in financial networks. Quantitative Finance and Economics, 2(2):468–496.
  18. Network Structure and Systemic Risk in Banking Systems, page 327–368. Cambridge University Press.
  19. Fire sales, indirect contagion and systemic stress testing. Working Paper 2017/2, Norges Bank.
  20. Capital and Contagion in Financial Networks. MPRA Paper 52141, University Library of Munich, Germany.
  21. Complex networks in finance. pages 209–235. Springer.
  22. Systemic risk in financial systems. Management Science, 47(2):236–249.
  23. Financial networks and contagion. American Economic Review, 104(10):3115–53.
  24. Farboodi, M. (2021). Intermediation and Voluntary Exposure to Counterparty Risk. NBER Working Papers 29467, National Bureau of Economic Research, Inc.
  25. Interbank asset-liability networks with fire sale management. Journal of Economic Dynamics and Control, 155:104734.
  26. Hidden power of the big three? passive index funds, re-concentration of corporate ownership, and new financial risk. Business and Politics, 19(2):298–326.
  27. The credit quality channel: Modeling contagion in the interbank market. Journal of Financial Stability, 25(C):83–97.
  28. Hevey, D. (2018). Network analysis: a brief overview and tutorial. Health Psychology and Behavioral Medicine, 6:301 – 328.
  29. Cascading failures in bi-partite graphs: Model for systemic risk propagation. Scientific Reports, 3(1).
  30. Systemic risk in financial networks: A survey.
  31. Information cascades in complex networks. Journal of Complex Networks, 5(5):665–693.
  32. Robustness of network centrality metrics in the context of digital communication data. Proceedings of the Annual Hawaii International Conference on System Sciences, 2015:1798–1807.
  33. Input-Output Economics. Number 9780195035278 in OUP Catalogue. Oxford University Press.
  34. Leontief, W. W. (1936). Quantitative input and output relations in the economic systems of the united states. The Review of Economics and Statistics, 18(3):105–125.
  35. Markose, M. S. M. (2012). Systemic Risk from Global Financial Derivatives: A Network Analysis of Contagion and Its Mitigation with Super-Spreader Tax. IMF Working Papers 2012/282, International Monetary Fund.
  36. ‘too interconnected to fail’ financial network of us cds market: Topological fragility and systemic risk. Journal of Economic Behavior & Organization, 83(3):627–646. The Great Recession: motivation for re-thinking paradigms in macroeconomic modeling.
  37. Influence of measurement errors on networks: Estimating the robustness of centrality measures. Network Science, 7(2):180–195.
  38. Partial correlation financial networks. Applied Network Science, 5(1):11.
  39. May’s instability in large economies. Phys. Rev. E, 100:032307.
  40. Robustness of centrality measures against network manipulation. Physica A: Statistical Mechanics and its Applications, 438.
  41. Olmo, J. (2021). Optimal portfolio allocation and asset centrality revisited. Quantitative Finance, 21(9):1475–1490.
  42. Graph neural networks for asset management.
  43. Financial networks based on granger causality: A case study. Physica A: Statistical Mechanics and its Applications, 482:65–73.
  44. Credit default swaps networks and systemic risk. Scientific Reports, 4.
  45. Dimensional reduction of solvency contagion dynamics on financial networks.
  46. Node-weighted centrality: a new way of centrality hybridization. Computational Social Networks, 7:6.
  47. Structural effects of network sampling coverage i: Nodes missing at random. Social Networks, 35:652–668.
  48. Teteryatnikova, M. (2014). Systemic risk in banking networks: Advantages of “tiered” banking systems. Journal of Economic Dynamics and Control, 47(C):186–210.
  49. Veraart, L. A. M. (2020). Distress and default contagion in financial networks. Mathematical Finance, 30(3):705–737.
  50. Risk contagion of global stock markets under covid-19:a network connectedness method. Accounting & Finance, 61(4):5745–5782.

Summary

No one has generated a summary of this paper yet.

Ai Sparkles Streamline Icon: https://streamlinehq.com Sign Up to Summarize

Paper to Video (Beta)

Whiteboard

No one has generated a whiteboard explanation for this paper yet.

Ai Sparkles Streamline Icon: https://streamlinehq.com Sign Up to Generate

Open Problems

We haven't generated a list of open problems mentioned in this paper yet.

Ai Sparkles Streamline Icon: https://streamlinehq.com Generate Now

Continue Learning

We haven't generated follow-up questions for this paper yet.

Ai Sparkles Streamline Icon: https://streamlinehq.com Generate Now

Collections

Sign up for free to add this paper to one or more collections.

User Circle Single Streamline Icon: https://streamlinehq.com Sign Up

Tweets

Sign up for free to view the 4 tweets with 1 like about this paper.

User Circle Single Streamline Icon: https://streamlinehq.com Sign Up for Free