Evolutionary systemic risk: Fisher information flow metric in financial network dynamics

Khaldoun Khashanah and Hanchao Yang

Physica A: Statistical Mechanics and its Applications, 2016, vol. 445, issue C, 318-327

Abstract: Recently the topic of financial network dynamics has gained renewed interest from researchers in the field of empirical systemic risk measurements. We refer to this type of network analysis as information flow networks analysis (IFNA). This paper proposes a new method that applies Fisher information metric to the evolutionary dynamics of financial networks using IFNA. Our paper is the first to apply the Fisher information metric to a set of financial time series. We introduce Evolution Index (EI) as a measure of systemic risk in financial networks. It is shown, for concrete networks with actual data of several stock markets, that the EI can be implemented as a measure of fitness of the stock market and as a leading indicator of systemic risk.

Keywords: Systemic risk; Financial network dynamics; Information flow networks analysis; Minimum spanning tree; Fisher information metric; Evolution Index (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:445:y:2016:i:c:p:318-327

DOI: 10.1016/j.physa.2015.10.012

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