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Crisis transmission: Visualizing vulnerability

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  • Dungey, Mardi
  • Islam, Raisul
  • Volkov, Vladimir

Abstract

This paper develops a means of visualizing the vulnerability of complex systems of financial interactions around the globe using Neural Network clustering techniques. We show how time-varying spillover indices can be translated into two dimensional crisis maps. The crisis maps have the advantage of showing the changing paths of vulnerability, including the direction and extent of the effect between source and affected markets. Using equity market data for 31 global markets over 1998–2017 we provide these crisis maps. These tools help portfolio managers and policy makers to distinguish which of the available tools for crisis management will be most appropriate for the form of vulnerability in play.

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  • Dungey, Mardi & Islam, Raisul & Volkov, Vladimir, 2020. "Crisis transmission: Visualizing vulnerability," Pacific-Basin Finance Journal, Elsevier, vol. 59(C).
  • Handle: RePEc:eee:pacfin:v:59:y:2020:i:c:s0927538x19302665
    DOI: 10.1016/j.pacfin.2019.101255
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    Cited by:

    1. Islam, Raisul & Volkov, Vladimir, 2020. "Contagion or interdependence? Comparing signed and unsigned spillovers," Working Papers 2020-05, University of Tasmania, Tasmanian School of Business and Economics.
    2. World Bank, 2020. "Indonesia Economic Prospects, July 2020," World Bank Other Operational Studies 34123, The World Bank.

    More about this item

    Keywords

    Systemic risk; Networks;

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • 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
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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