Statistical estimation of time-varying complexity in financial networks

Aditi Rai, Avijit Bansal and Anindya S. Chakrabarti ()
Additional contact information
Aditi Rai: Indian Institute of Management, Vastrapur
Avijit Bansal: Finance & Accounting Area, Indian Institute of Management, Vastrapur
Anindya S. Chakrabarti: Economics Area, Indian Institute of Management, Vastrapur

The European Physical Journal B: Condensed Matter and Complex Systems, 2019, vol. 92, issue 10, 1-9

Abstract: Abstract In this paper, we propose a method to characterize the relation between financial market instability and the underlying complexity by identifying structural relationships in dynamics of stock returns. The proposed framework is amenable to statistical and econometric estimation techniques, and at the same time, provides a theoretical link between stability of a financial system and the embedded heterogeneity, in line of the May-Wigner result. We estimate the interaction matrix of stock returns through a vector autoregressive structure and compute heterogeneity in the strength of connections for time periods covering periods before the 2007–08 crisis, during the crisis and post-crisis recovery. We show that the empirically estimated heterogeneity increased substantially during time of financial crisis and subsequently tapered off, demonstrating concurrent rise and fall in the degree of instability. Graphical abstract

Keywords: Statistical; and; Nonlinear; Physics (search for similar items in EconPapers)
Date: 2019
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1140/epjb/e2019-100161-1 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:eurphb:v:92:y:2019:i:10:d:10.1140_epjb_e2019-100161-1

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/10051

DOI: 10.1140/epjb/e2019-100161-1

Access Statistics for this article

The European Physical Journal B: Condensed Matter and Complex Systems is currently edited by P. Hänggi and Angel Rubio

More articles in The European Physical Journal B: Condensed Matter and Complex Systems from Springer, EDP Sciences
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().