Multiple channels of financial contagion: an empirical analysis of stock price dynamics
Stefano Nasini and
Finance, 2019, vol. 40, issue 1, 87-133
In this paper we study how the effects on stock price dynamics of different network propagation channels and centrality vary according to the state of the economy. Drawing on the view that decisions and outcomes of financial firms are influenced by multiple network channels, we study the stock price dynamics of listed enterprises connected by supply-chain relationships, competition linkages and business partnerships. We derive theoretical properties of the proposed network-based econometric approach which allows decomposing these effects into networks propagation and firms structural positions, with a particular focus on firms? centralities. Using comprehensive firm-level network data on 7256 U.S. listed enterprises, we document that stock prices are significantly exposed to multiple network propagation, and at the same time highly sensitive to the structural positions of firms in the networks. These effects are sizable, time-varying and asymmetric over the business cycle during normal versus crisis periods 1 .
Keywords: inter-firm contagion; stock price dynamics; firms centrality; financial econometrics; industry-based network effects (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:cai:finpug:fina_401_0087
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