The topology of indirect correlation networks formed by common assets

Beixin Li, Xiaoxing Liu and Chao Wang

Physica A: Statistical Mechanics and its Applications, 2019, vol. 528, issue C

Abstract: Evidence is provided that networks resulted from interbank loans have some common topological properties. As shown in this paper, indirect correlation networks formed by common assets have similar properties with interbank networks. On the basis of the systemic indirect correlation, the effects of investment behaviors, endogenous correlations among assets and fire sales of common assets are primarily tested in this paper. Then the indirect correlation network of banks is constructed and the planar maximally filtered graph is used to filter redundant information. The small world phenomenon, scale-free phenomenon and communities are found by analyzing indirect correlation networks. All the topological properties are also found on the real financial market according to the dataset from China. This observation provides a new perspective for regulators to promote the stability of banking system.

Keywords: Common assets; Fire sales; Utility function; Indirect correlation networks (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:528:y:2019:i:c:s0378437119308891

DOI: 10.1016/j.physa.2019.121496

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