Nicola, G;
Cerchiello, P;
Aste, T;
(2020)
Information Network Modeling for U.S. Banking Systemic Risk.
Entropy
, 22
(11)
, Article 1331. 10.3390/e22111331.
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Abstract
In this work we investigate whether information theory measures like mutual information and transfer entropy, extracted from a bank network, Granger cause financial stress indexes like LIBOR-OIS (London Interbank Offered Rate-Overnight Index Swap) spread, STLFSI (St. Louis Fed Financial Stress Index) and USD/CHF (USA Dollar/Swiss Franc) exchange rate. The information theory measures are extracted from a Gaussian Graphical Model constructed from daily stock time series of the top 74 listed US banks. The graphical model is calculated with a recently developed algorithm (LoGo) which provides very fast inference model that allows us to update the graphical model each market day. We therefore can generate daily time series of mutual information and transfer entropy for each bank of the network. The Granger causality between the bank related measures and the financial stress indexes is investigated with both standard Granger-causality and Partial Granger-causality conditioned on control measures representative of the general economy conditions.
| Type: | Article |
|---|---|
| Title: | Information Network Modeling for U.S. Banking Systemic Risk |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.3390/e22111331 |
| Publisher version: | https://doi.org/10.3390/e22111331 |
| Language: | English |
| Additional information: | This is an open access article distributed under the Creative Commons Attribution License (https://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. |
| Keywords: | granger causality; graphical models; financial stress |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > Dept of Computer Science |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10116335 |
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