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When does low interconnectivity cause systemic risk?

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  • Burak Saltoglu
  • Taylan Yenilmez

Abstract

We analysed a systemic liquidity crisis by using a unique money market data-set in which the coded identity of the counterparties of each trade is known. Contrary to recent findings, we did not observe a positive relationship between interconnectivity and systemic risk. We have concluded that our conflicting findings can be related to the degree of market concentration on the borrowing side of the funding market. High level of concentration in the borrowing side led to lower interconnectivity but higher systemic risk prior to the crisis. We conclude that measures of market heterogeneity should be used to generalize the relationship between systemic risk and interconnectivity.

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  • Burak Saltoglu & Taylan Yenilmez, 2015. "When does low interconnectivity cause systemic risk?," Quantitative Finance, Taylor & Francis Journals, vol. 15(12), pages 1933-1942, December.
    • Handle: RePEc:taf:quantf:v:15:y:2015:i:12:p:1933-1942
    DOI: 10.1080/14697688.2015.1043331
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    Cited by:

    1. Cem Iskender Aydin & Begum Ozkaynak & Beatriz Rodríguez-Labajos & Taylan Yenilmez, 2017. "Network effects in environmental justice struggles: An investigation of conflicts between mining companies and civil society organizations from a network perspective," PLOS ONE, Public Library of Science, vol. 12(7), pages 1-20, July.
    2. Kuzubaş, Tolga Umut & Saltoğlu, Burak & Sever, Can, 2016. "Systemic risk and heterogeneous leverage in banking networks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 462(C), pages 358-375.

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