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Networks of Economic Market Interdependence and Systemic Risk

Author

Listed:
  • Dion Harmon
  • Blake Stacey
  • Yavni Bar-Yam
  • Yaneer Bar-Yam

Abstract

The dynamic network of relationships among corporations underlies cascading economic failures including the current economic crisis, and can be inferred from correlations in market value fluctuations. We analyze the time dependence of the network of correlations to reveal the changing relationships among the financial, technology, and basic materials sectors with rising and falling markets and resource constraints. The financial sector links otherwise weakly coupled economic sectors, particularly during economic declines. Such links increase economic risk and the extent of cascading failures. Our results suggest that firewalls between financial services for different sectors would reduce systemic risk without hampering economic growth.

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  • Dion Harmon & Blake Stacey & Yavni Bar-Yam & Yaneer Bar-Yam, 2010. "Networks of Economic Market Interdependence and Systemic Risk," Papers 1011.3707, arXiv.org, revised Nov 2010.
    • Handle: RePEc:arx:papers:1011.3707
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    Cited by:

    1. João Gama Batista & Jean-Philippe Bouchaud & Damien Challet, 2015. "Sudden trust collapse in networked societies," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 88(3), pages 1-11, March.
    2. Molly Anderson, 2015. "The role of knowledge in building food security resilience across food system domains," Journal of Environmental Studies and Sciences, Springer;Association of Environmental Studies and Sciences, vol. 5(4), pages 543-559, December.
    3. Dion Harmon & Marco Lagi & Marcus A M de Aguiar & David D Chinellato & Dan Braha & Irving R Epstein & Yaneer Bar-Yam, 2015. "Anticipating Economic Market Crises Using Measures of Collective Panic," PLOS ONE, Public Library of Science, vol. 10(7), pages 1-27, July.
    4. Trapp, Monika & Wewel, Claudio, 2012. "Transatlantic systemic risk," CFR Working Papers 12-10, University of Cologne, Centre for Financial Research (CFR).
    5. Esmalifalak, Hamidreza, 2022. "Euclidean (dis)similarity in financial network analysis," Global Finance Journal, Elsevier, vol. 53(C).
    6. Aymeric Vié & Alfredo J. Morales, 2021. "How Connected is Too Connected? Impact of Network Topology on Systemic Risk and Collapse of Complex Economic Systems," Computational Economics, Springer;Society for Computational Economics, vol. 57(4), pages 1327-1351, April.
    7. Kyrtsou, Catherine & Mikropoulou, Christina & Papana, Angeliki, 2016. "Does the S&P500 index lead the crude oil dynamics? A complexity-based approach," Energy Economics, Elsevier, vol. 56(C), pages 239-246.
    8. Arnav Hiray & Pratvi Shah & Vishwa Shah & Agam Shah & Sudheer Chava & Mukesh Tiwari, 2023. "Shifting Cryptocurrency Influence: A High-Resolution Network Analysis of Market Leaders," Papers 2307.16874, arXiv.org, revised Jan 2024.
    9. Gautier Marti & Frank Nielsen & Miko{l}aj Bi'nkowski & Philippe Donnat, 2017. "A review of two decades of correlations, hierarchies, networks and clustering in financial markets," Papers 1703.00485, arXiv.org, revised Nov 2020.
    10. Trapp, Monika & Wewel, Claudio, 2013. "Transatlantic systemic risk," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4241-4255.
    11. Trapp, Monika & Wewel, Claudio, 2013. "Transatlantic systemic risk," CFR Working Papers 12-10 [rev.], University of Cologne, Centre for Financial Research (CFR).
    12. Eric Benhamou & David Saltiel & Jean-Jacques Ohana & Jamal Atif, 2020. "Detecting and adapting to crisis pattern with context based Deep Reinforcement Learning," Papers 2009.07200, arXiv.org, revised Nov 2020.
    13. Aymeric Vi'e & Alfredo J. Morales, 2019. "How connected is too connected? Impact of network topology on systemic risk and collapse of complex economic systems," Papers 1912.09814, arXiv.org.

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