Assessing Dynamic Changes of the US Financial Market: Insights from Network Science

Yerali Gandica1,2,3, Marco Geraci1,3,4,5, Sophie Béreau1,2,6,7, Jean-Yves Gnabo1,2,3

  • 1 University of Namur
  • 2 CeReFiM
  • 3 Namur Center for Complex Systems
  • 4 ECARES
  • 5 Université Libre de Bruxelles
  • 6 CORE
  • 7 Université Catholique de Louvain

Drawing on the recent and buoyant literature inferring financial interconnectedness from market data by means of various time series techniques [Billio et al. (2012), Diebold and Yilmaz(2015) and Geraci and Gnabo (2016)], we propose in this communication an in-depth analysis of the US financial market and its dynamic, using tools coming from network science. The financial system analyzed consists in a large set of 154 banks, brokers/dealers, insurance and real estate companies listed in the Standard & Poor’s 500 index for the period 1993 - 2014. Looking at the individual, sectoral, community and system wide levels, we show that network science’s tools are able to support well-known features of financial markets such as the dramatic fall of connectivity amid Lehmann Brother collapse. In addition, we also unveil several important new patterns within US financial institutions interconnectedness. Overall, our results improve our understanding of the US financial landscape and may have important implications for risk monitoring as well as macroprudential policy design.