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Interconnectedness and Systemic Risk: A Comparative Study Based on Systemically Important Regions

Fang, L., Cheng, J. and Su, F. (2019). Interconnectedness and Systemic Risk: A Comparative Study Based on Systemically Important Regions. Pacific-Basin Finance Journal, 54, pp. 147-158. doi: 10.1016/j.pacfin.2019.02.007

Abstract

We apply a novel technique to identify systemically important regions (SIRs) in a global network that shows a reduced degree of concentration and the development of a multi-centered structure. We observe that when a region is more connected to other regions, it is exposed to a higher level of systemic risk. This condition holds even more strongly for non-systemically important regions. However, for SIRs, interconnectedness is not significantly associated with systemic risk. Our empirical evidence suggests that an increase in interconnectedness at the regional level, together with a decrease in interconnectedness for a single pivotal center, may reduce the aggregate systemic risk at the global level.

Publication Type: Article
Additional Information: © Elsevier 2019. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Publisher Keywords: Interconnectedness, Systemically important regions, Systemic risk, Networks
Subjects: H Social Sciences > HG Finance
J Political Science > JZ International relations
Departments: Bayes Business School > Actuarial Science & Insurance
Date available in CRO: 15 Mar 2019 16:29
Date deposited: 15 March 2019
Date of acceptance: 20 February 2019
Date of first online publication: 22 February 2019
URI: https://openaccess.city.ac.uk/id/eprint/21870
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