Default Count-Based Network Models for Credit Contagion

Random matrix theory is applied to study the correlation between different financial correlation coefficient matrices in the financial field. Correlation coefficient matrix is a key factor for constructing a network. In this paper we relate the random matrix theory to the network construction to study the financial networks model in terms of the random matrix. We select the stock data of Shanghai stock market, and divide them into four stages. We discuss the statistical properties of eigenvalues in financial correlation coefficient matrix and random matrix based on the random matrix theory, and improve the existing denoising method to construct the correlation coefficient matrix and to make it more suitable for building financial networks. After that we can build the financial network model. Then we analyze and compare the original financial network, the denoising financial network and the noise financial network in terms of the random matrix theory and the key node of networks. It is found that the primary important information is still in the original network, and the noise information corresponds to the information which the nodes of small degree in the original network include. Finally we analyze the topological structure of the financial networks, such as the minimum spanning tree, the motif and community structure. We also find that the topological properties of the improved financial networks are more remarkable and the topological structure is more compact.

This paper contributes to the finance literature by investigating the risk contagion and bailout effects in the global financial system. We use the bilateral exposure matrix to examine the impact of credit shocks and liquidity shocks on the global financial system when a Global Systemically Important Bank (G-SIB) is supposed to be in distress. The findings indicate that the global financial network is dominated by large and medium-sized financial institutions. Credit shocks does not play a significant role in risk contagion nor do they trigger the systemic risk in the global financial system. However, the global financial network is more vulnerable to liquidity shocks than to credit shocks. If a credit shock and liquidity shock overlaps with each other, the hybrid shock can exacerbate the risk contagion effects and lead to rapid propagation throughout the global financial network. If a regulator bails out the distressed institutions, the bailout efficiency increases with the number of rescued institutions. However, the improvement in of bailout efficiency decreases with the number of rescued institutions. If a regulator can promote financial institutions to raise the rollover ratio, the financial system will be more robust to shocks. This paper provides a ground view of systemic risks contagion and sheds light on directions for future research on systemic risk contagion in the global financial system. • The credit shock does not play a significant role in risk contagion in the global financial system. However, the liquidity shock has shown more substantial effects than that of the credit shock. • If the credit shock and liquidity shock overlaps with each other, the contagion effects are amplified. • If the regulator implements the bailout, the total rescue effects in the second round is better than that of other rounds. • If the financial institutions can raise the rollover ratio, the impact of systemic risk could be reduced significantly.

Modelling contagion of financial crises

In the diversified and complex environment of financial markets, effective investment strategy prediction has become particularly crucial. Especially in the bond market, due to its close connection with macroeconomic factors, the accuracy of predictions is of great significance for investment returns and risk management. This article delves into the application and strategic analysis of financial neural network models in bond investment prediction. We first reviewed the basic architecture of financial neural network models and emphasized their advantages in capturing nonlinear market dynamics. Then, we describe in detail how to use this model to predict the bond market, including the impact of interest rate changes, credit risk and macroeconomic factors. Furthermore, we propose a bond investment strategy framework based on neural network prediction. This framework considers various factors such as market liquidity, bond duration, and credit rating to optimize the returns and risks of investment portfolios. With the further development of deep learning and neural network technology in the financial field, its application potential in bond market prediction and strategy formulation will be more widely recognized and utilized.

The Great Recession: Some Niebuhrian Reflections

. A new metric, called variation of conditional mean (VCM), is proposed to measure the dependence of conditional mean of a response variable on a predictor variable. The VCM has several appealing merits. It equals zero if and only if the conditional mean of the response is independent of the predictor; it can be used for both real vector-valued variables and functional data. An estimator of the VCM is given through kernel smoothing, and a test for the conditional mean independence based on the estimated VCM is constructed. The limit distributions of the test statistic under the null hypothesis and alternative hypothesis are deduced, respectively. We further use VCM as a marginal utility to do high-dimensional feature screening to screen out variables that do not contribute to the conditional mean of the response given the predictors and prove the validity of the sure screening property. Furthermore, we find the cross variation of conditional mean (CVCM), a variant of the VCM, has a faster convergence rate than the VCM under conditional mean independence. Numerical comparison shows that the VCM and CVCM performs well in both conditional independence testing and feature screening. We also illustrate their applications to real data sets.

Anwar Nasution: It is my pleasure to comment on this excellent paper on the important topic of analyzing the People’s Republic of China’s (PRC) reforms over the past decade to move toward internationalizing the Renminbi (RMB). The RMB is beginning to be used as an international medium of exchange in dominating and setting cross-border trade and financial transactions. The paper summarizes the benefits and costs of RMB internationalization from a theoretical point of view. There are also econometric studies on the impacts of RMB internationalization on financial development in the PRC and the estimate of seigniorage revenue of RMB, but there is no estimate on the inflationary tax enjoyed by the PRC from foreign holdings of its currency. In addition, internationalization of the RMB allows the PRC to borrow from the international community with liabilities denominated in that currency without exchange rate risk. Unfortunately, there are no brief summaries of PRC government policies on how to make the RMB become an international unit of account, medium of exchange, and store of value. Also there is no information provided in the paper on the size of capital markets in the PRC: the structural financial system, the size of public sector debt and security market, and their liquidity.

Global Financial Crisis and Islamic Finance

We investigate network formation for a set of financial institutions represented as nodes. Linkages are source of income, and at the same time they bear the risk of contagion. The optimal connectivity of the nodes results from a game, in which the risk of contagion depends on the choices of all nodes in the system. Our financial network model can be interpreted as a set of banks connected through funding relations, in which a node’s threshold to contagion is represented by its external funding capacity. A second interpretation is that of a set of insurers connected through reinsurance contracts, in which the threshold to contagion is represented by their capital. Our results show that when the threshold distribution across the nodes has higher variance, then, in equilibrium, the average connectivity is in general increasing, but the link failure probability decreases. This suggests that financial stability is best described in terms of the mechanism of network formation than in terms of simple statistics of the network topology like the average connectivity.

A critique of Canadian policyMORE THAN THREE YEARS AFTER the onset of Asia's financial crisis, several of the region's economies have been showing signs of recovery. As interest rates continue to decline and exchange rates in the region show signs of strength, many analysts argue that the region is poised to resume its journey towards economic growth and development. Because of improvements in the regional economy, some believe that the worst is over and that standards of living and social conditions in Asia will continue their long march upward.The complete story, however, is less sanguine. In some countries, industrial capacity continues to decline and private investment is far from pre-crisis levels. These persistent challenges promise even more unemployment and continued social difficulties. When coupled with the likelihood of continued economic hardship in some economies through 2000 and 2001, the popular argument that Asia's economic and political troubles are over seems less convincing as the declining social security/welfare situation is not likely to see consistent improvement.(1) Even if the least afflicted economies manage to post strong growth through the remainder of 2000, their situation will remain precarious, and economic stability will not be assured. Consequently, they will be less able to provide their citizens with the sorts of opportunities for economic advancement that were available prior to the crisis.(2) The absolute number of people living either on or below the poverty line will remain large, and the human welfare challenges posed by the crisis will persist. As a result, Canadian policy-makers will have to remain vigilant and continue to monitor the situation in Asia closely.The purpose of this article, however, is to go beyond the income-related effects of the crisis and draw attention to some of its more specific implications on human security concerns in three Southeast Asian countries - Malaysia, the Philippines, and Vietnam. Using data uncovered during fieldwork - through interviews/consultations with personnel from government, academe, and non-governmental/activist groups, as well as a review of primary and secondary data most readily available in these countries - the article provides a critique of how the Canadian policy establishment conceptualizes and articulates human security in the 1995 foreign policy statement, Canada in the World.The decision to focus on Malaysia, the Philippines, and Vietnam was driven by two key considerations. First, the violence and remarkable political transformations that took place in Indonesia and, to a lesser degree, in Thailand and South Korea has meant that other countries affected by the crisis have received relatively less attention and analysis either from academe or from the international media. Second, each of these countries is experiencing social, economic, and political transformations that began before the onset of the crisis. By focusing on these three countries, it is possible to examine how an exogenous/systemic shock (the crisis) affected domestic/endogenous processes of social and governmental change and the implications of this interaction on human security concerns.The article makes two arguments. First, Asia's financial crisis had a considerable impact in countries already undergoing transitional processes. On their own, these internal transformations posed serious human security challenges to citizens in each country, and the onset of the crisis exacerbated their effects. In some cases, key institutions faltered and human security was compromised in ways that go beyond the income-related effects of the crisis. Second, the observations and conclusions drawn from the fieldwork, in most cases, present a direct challenge to how Canadian policy-makers conceptualize human security. Based on the data uncovered during the course of research, the argument is that Canada should rethink its understanding of human security if its efforts are to be effective over the longer term. …

Is there Inter-Regional Systemic Risk Contagion? An Investigation of Inter-Regional Systemic Risk Spillover Effects using the ESS-indicator and Bank CDS Spreads

Financial risk contagion based on dynamic multi-layer network between banks and firms

This study examines the influence of client deposits, securities, and outstanding shares on key banking operations and their role in the development of mutual funds within Kazakhstan's financial system. The research focuses on identifying which financial instruments contribute significantly to resource allocation and the sustainability of mutual funds. Two primary hypotheses were tested: first, that securities and deposits of legal entities significantly impact banking performance and mutual fund growth, and second, that individual deposits and outstanding securities have a measurable influence on these outcomes. To address these questions, a multivariate analysis of covariance (MANCOVA) was conducted, supported by univariate tests and graphical methods such as Q-Q plots and raincloud plots. Data from Kazakhstan’s financial institutions between 2012 and 2023 were analyzed to assess the statistical significance of these factors. Deposits from legal entities demonstrated their dominant role in the financial system, significantly impacting bank liquidity and resource allocation. In contrast, individual deposits and outstanding securities showed no statistical significance, reflecting the low engagement of private investors and their preference for traditional deposits over more complex investment instruments. Securities showed a significant impact on banking operations but were focused on the corporate sector and institutional investments. The results contrast with international markets in a strong dependence of the financial system on the corporate sector. Although securities are widely used to attract capital and manage investments, their market in Kazakhstan likely remains narrowly specialized and insufficiently liquid, a contrast rarely seen in studies of more developed markets.

This study aimed to evaluate the role of public relations departments in the economic sectors in promoting social responsibility, as the efforts in this field are considered one of the main functions that contribute to building a positive and interactive image of companies and institutions among the internal and external public. The researcher used the survey method, content analysis tools and questionnaire to answer the problem of his research by collecting and analyzing data from a sample of 300 individuals including public relations employees and social responsibility employees in companies and institutions and members of the parent community: institutions of the economic sector in the Eastern Province. The researcher divided the study into two chapters, the first chapter was entitled: (Theoretical Framework of the Study), while the second chapter was entitled: (Methodological Procedures of the Study), and the two chapters included many topics, followed by the most important results, recommendations and conclusion, a list of sources, references, indexes and study appendices. The study came out with a set of results, including that economic institutions in the Eastern Province focus on performing public relations functions related to improving the mental image as a priority in their work. It also confirmed that the majority of economic sector institutions in the Eastern Province implement many community partnerships, but some of them are few and unsustainable, while they do not exist in a few of them. Among the results is that community work is carried out by a large percentage of public relations departments in economic institutions in the Eastern Province according to a strategy and plans prepared to enhance community partnerships. The implementation of social programs and initiatives by public relations departments in many economic institutions in the Eastern Province also contributes to the effective implementation of social programs and initiatives within the context of their tasks and functions.

We address a fundamental problem that is systematically encountered when modeling real-world complex systems of societal relevance: the limitedness of the information available. In the case of economic and financial networks, privacy issues severely limit the information that can be accessed and, as a consequence, the possibility of correctly estimating the resilience of these systems to events such as financial shocks, crises and cascade failures. Here we present an innovative method to reconstruct the structure of such partially-accessible systems, based on the knowledge of intrinsic node-specific properties and of the number of connections of only a limited subset of nodes. This information is used to calibrate an inference procedure based on fundamental concepts derived from statistical physics, which allows to generate ensembles of directed weighted networks intended to represent the real system—so that the real network properties can be estimated as their average values within the ensemble. We test the method both on synthetic and empirical networks, focusing on the properties that are commonly used to measure systemic risk. Indeed, the method shows a remarkable robustness with respect to the limitedness of the information available, thus representing a valuable tool for gaining insights on privacy-protected economic and financial systems.