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Interconnectedness and systemic risk: A comparative study based on systemically important regions

Lei Fang, Jiang Cheng and Fang Su

Pacific-Basin Finance Journal, 2019, vol. 54, issue C, 147-158

Abstract: We apply a novel technique to identify systemically important regions (SIRs) in a global network that shows a reduced degree of concentration and the development of a multi-centered structure. We observe that when a region is more connected to other regions, it is exposed to a higher level of systemic risk. This condition holds even more strongly for non-systemically important regions. However, for SIRs, interconnectedness is not significantly associated with systemic risk. Our empirical evidence suggests that an increase in interconnectedness at the regional level, together with a decrease in interconnectedness for a single pivotal center, may reduce the aggregate systemic risk at the global level.

Keywords: Interconnectedness; Systemically important regions; Systemic risk; Networks (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:eee:pacfin:v:54:y:2019:i:c:p:147-158