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The kiss of information theory that captures systemic risk

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Abstract

We provide a new approach to understanding systemic risk by analysing complex linkages in finance and insurance sectors. The analysis is achieved by using a recently proposed method for quantifying causal coupling strength, which identifies the existence of causal dependencies between two components of a multivariate time series and assesses the strength of their association by defining a meaningful coupling strength. The measure of association is general, causal and lag-specific, reflecting a well interpretable notion of coupling strength and is pratically computable. A comprehensive analysis of the feasibility of this approach is provided via simulated and real data

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  • Peter Martey Addo & Philippe De Peretti & Hayette Gatfaoui & Jakob Runge, 2014. "The kiss of information theory that captures systemic risk," Documents de travail du Centre d'Economie de la Sorbonne 14069r, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Mar 2015.
    • Handle: RePEc:mse:cesdoc:14069r
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    1. Addo, Peter Martey & Billio, Monica & Guégan, Dominique, 2013. "Nonlinear dynamics and recurrence plots for detecting financial crisis," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 416-435.
    2. Peter Martey Addo & Monica Billio & Dominique Guegan, 2013. "Understanding Exchange Rates Dynamics," Post-Print halshs-00803447, HAL.
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    Cited by:

    1. Florent MCISAAC & Florent Mc ISAAC, 2017. "An Input-Output Analysis: What Would a Low-Carbon Economy for Brazil Mean?," Working Paper f2f77b78-bd3b-4408-b3e9-d, Agence française de développement.
    2. Peter Martey Addo, 2015. "Coupling direction of the European Banking and Insurance sectors using inter-system recurrence networks," Post-Print halshs-01169516, HAL.
    3. Peter Martey Addo, 2015. "Coupling direction of the European Banking and Insurance sectors using inter-system recurrence networks," Documents de travail du Centre d'Economie de la Sorbonne 15051, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.

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    More about this item

    Keywords

    Systemic risk; causal dependencies; financial institutions; linkages; Sovereign debt;
    All these keywords.

    JEL classification:

    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

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