Causal evolution of global crisis in financial networks

We show that the causal network structure of the stock prices of prominent companies in the New York Stock Exchange reveals distinct patterns before, during, and after the 2007–08 global financial crisis. We find a reduced participation of banks in the market activity about seven years before the actual crisis, which indicates its possible role in the global crisis. Aggregated causal influences during the crisis period show a significant increase in the causal effects to the consumer discretionary, financial, and IT sectors. Moreover, we found no correlation between out-flux and in-flux of causal influence of the obtained networks. Two prominent results of the causal networks are, (a) the absence of feedback in the obtained directed network, and (b) the absence of strongly connected components indicating that a financial firm is unaffected by the causal influence propagated by itself. The analysis of causal out-flux clearly reveals that the market is driven by consumer staples and health-care sectors during the crisis phase, while the recovery phase, immediately after the crisis period, is influenced by material, health-care, and consumer discretionary sectors. We characterize the vertices in the causal networks by three local properties, viz., out-degree, in-degree, and node-betweenness, which reveal key companies producing, receiving, and mediating the causal influences. We also find that the aggregate sum of causal influences in companies from energy sector is among the least for all periods, indicating its robustness. A similar behavior is also reflected in the much smaller Indian market.