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Study on the contagion among American industries

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  • Chunxia, Yang
  • Xueshuai, Zhu
  • Luoluo, Jiang
  • Sen, Hu
  • He, Li

Abstract

Using a sliding window to scan through every industry index from 2 Jan 2003 to 26 Dec 2013 and transfer entropy to investigate information flow among sectors, we figure out corresponding industry’s transfer entropy matrix in every given window. Next, a further analysis of information flow’s variations between industries is carried out. Finally, we also use daily trading volumes of each group to carefully analyze trading volume correlation between sectors. The obtained facts are as follows. First, as crisis intensified, the amount of information flow between industries continues to grow and finally reaches a peak over full-outbreak periods. Second, Financial sector always has large output transfer entropy, and before January 2007, the main information flow is from Financial sector to Non-Daily consumption, Energy, Raw material and Industrial sectors while around 12 April 2007, it has changed from Energy, Raw material and Industrial groups to Telecom, Daily consumption, Public utilities and Health care industries. Thus, Financial industry is the arch-criminal and it seriously affects Non-Daily consumption, Energy, Raw material and Industrial groups. Later, Telecom, Daily consumption, Health care and Public utilities industries are all plunged into the crisis, and financial crisis sweeps all the industries eventually. Besides, we also find that trading volume correlation is the fundamental reason of crisis propagation.

Suggested Citation

  • Chunxia, Yang & Xueshuai, Zhu & Luoluo, Jiang & Sen, Hu & He, Li, 2016. "Study on the contagion among American industries," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 444(C), pages 601-612.
  • Handle: RePEc:eee:phsmap:v:444:y:2016:i:c:p:601-612
    DOI: 10.1016/j.physa.2015.10.058
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    References listed on IDEAS

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    7. Gottschalk, Sylvia, 2017. "Entropy measure of credit risk in highly correlated markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 478(C), pages 11-19.

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