Centrality measures of financial system interconnectedness : a multiple crises study

M. Zulkifli Salim; Dadang Ramdhan; Kevin Daly

doi:10.1016/j.heliyon.2023.e15427

Centrality measures of financial system interconnectedness : a multiple crises study

M. Zulkifli Salim, Dadang Ramdhan, Kevin Daly

Western Sydney University

Research output: Contribution to journal › Article › peer-review

1 Citation (Scopus)

Abstract

We explore how asset returns could be a good proxy to detect interlinkages in the financial system. This paper employs a US dataset for the 2002-2021 period. Pairwise returns correlation indicate the interconnectedness at the preliminary stage. The Principal Component Analysis captures a significant portion of variance and detects the co-movement and highly connected state of the financial market during crises. Granger centrality tested with pairwise directional variance decomposition indicates the importance of banks and insurance companies in the US financial system. This paper recommends policymakers use multiple network models to validate and calibrate the SIFIs list.

Original language	English
Article number	e15427
Number of pages	21
Journal	Heliyon
Volume	9
Issue number	4
DOIs	https://doi.org/10.1016/j.heliyon.2023.e15427
Publication status	Published - Apr 2023

Bibliographical note

Publisher Copyright:
© 2023

Open Access - Access Right Statement

Keywords

Interconnectedness
Systemic risk
Financial crises
Granger causality
Principal component analysis

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1016/j.heliyon.2023.e15427

Cite this

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title = "Centrality measures of financial system interconnectedness : a multiple crises study",

abstract = "We explore how asset returns could be a good proxy to detect interlinkages in the financial system. This paper employs a US dataset for the 2002-2021 period. Pairwise returns correlation indicate the interconnectedness at the preliminary stage. The Principal Component Analysis captures a significant portion of variance and detects the co-movement and highly connected state of the financial market during crises. Granger centrality tested with pairwise directional variance decomposition indicates the importance of banks and insurance companies in the US financial system. This paper recommends policymakers use multiple network models to validate and calibrate the SIFIs list.",

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AU - Ramdhan, Dadang

AU - Daly, Kevin

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N2 - We explore how asset returns could be a good proxy to detect interlinkages in the financial system. This paper employs a US dataset for the 2002-2021 period. Pairwise returns correlation indicate the interconnectedness at the preliminary stage. The Principal Component Analysis captures a significant portion of variance and detects the co-movement and highly connected state of the financial market during crises. Granger centrality tested with pairwise directional variance decomposition indicates the importance of banks and insurance companies in the US financial system. This paper recommends policymakers use multiple network models to validate and calibrate the SIFIs list.

AB - We explore how asset returns could be a good proxy to detect interlinkages in the financial system. This paper employs a US dataset for the 2002-2021 period. Pairwise returns correlation indicate the interconnectedness at the preliminary stage. The Principal Component Analysis captures a significant portion of variance and detects the co-movement and highly connected state of the financial market during crises. Granger centrality tested with pairwise directional variance decomposition indicates the importance of banks and insurance companies in the US financial system. This paper recommends policymakers use multiple network models to validate and calibrate the SIFIs list.

KW - Interconnectedness

KW - Systemic risk

KW - Financial crises

KW - Granger causality

KW - Principal component analysis

UR - https://hdl.handle.net/1959.7/uws:69931

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DO - 10.1016/j.heliyon.2023.e15427

M3 - Article

SN - 2405-8440

VL - 9

JO - Heliyon

JF - Heliyon

IS - 4

M1 - e15427

ER -

Centrality measures of financial system interconnectedness : a multiple crises study

Abstract

Bibliographical note

Open Access - Access Right Statement

Keywords

UN SDGs

Access to Document

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