Interdependencies and Causalities in Coupled Financial Networks

I. Vodenska, H. Aoyama, Y. Fujiwara, H. Iyetomi, Y. Arai, Interdependencies and causalities in complex financial networks, PLoS ONE 11(3): e0150994. doi:10.1371/journal.pone.0150994 (2016)

29th Australasian Finance and Banking Conference 2016

30 Pages Posted: 8 Aug 2014 Last revised: 11 May 2016

See all articles by Irena Vodenska

Irena Vodenska

Boston University Metropolitan College

Hideaki Aoyama

GSAIS, Kyoto University

Yoshi Fujiwara

University of Hyogo - Graduate School of Simulation Studies

Hiroshi Iyetomi

Niigata University

Yuta Arai

Niigata University

Date Written: July 15, 2014

Abstract

We explore the foreign exchange and stock market networks for 48 countries from 1999 to 2012 and propose a model, based on complex Hilbert principal component analysis, for extracting significant lead-lag relationships between these markets. The global set of countries, including large and small countries in Europe, the Americas, Asia, and the Middle East, is contrasted with the limited scopes of targets, e.g., G5, G7 or the emerging Asian countries, adopted by previous works. We construct a coupled synchronization network, perform community analysis, and identify formation of four distinct network communities that are relatively stable over time. In addition to investigating the entire period, we divide the time period into into "mild crisis," (1999-2002), "calm," (2003-2006) and "severe crisis" (2007-2012) sub-periods and find that the severe crisis period behavior dominates the dynamics in the foreign exchange-equity synchronization network. We observe that in general the foreign exchange market has predictive power for the global stock market performances. In addition, the United States, German and Mexican markets have forecasting power for the performances of other global equity markets.

Keywords: Complex Principal Component Analysis, Hilbert Transform, Financial Networks, Foreign Exchange, Equity Markets

JEL Classification: C21, C22, F31, G15

Suggested Citation

Vodenska, Irena and Aoyama, Hideaki and Fujiwara, Yoshi and Iyetomi, Hiroshi and Arai, Yuta, Interdependencies and Causalities in Coupled Financial Networks (July 15, 2014). I. Vodenska, H. Aoyama, Y. Fujiwara, H. Iyetomi, Y. Arai, Interdependencies and causalities in complex financial networks, PLoS ONE 11(3): e0150994. doi:10.1371/journal.pone.0150994 (2016); 29th Australasian Finance and Banking Conference 2016. Available at SSRN: https://ssrn.com/abstract=2477242 or http://dx.doi.org/10.2139/ssrn.2477242

Irena Vodenska (Contact Author)

Boston University Metropolitan College ( email )

808 Commonwealth Avenue
Boston, MA 02115
United States

Hideaki Aoyama

GSAIS, Kyoto University ( email )

Yoshida-Adachi-cho 1
Sakyo-ku
Kyoto, 606-8306
Japan
+81-9019011954 (Phone)

Yoshi Fujiwara

University of Hyogo - Graduate School of Simulation Studies ( email )

7-1-28 Minato-jima, Minami-machi
Chuo-ku
Kobe, Hyogo 650-0047
Japan

Hiroshi Iyetomi

Niigata University ( email )

8050 Ikarashi-2-cho
Nishi-ku
Niigata, 9502181
Japan

Yuta Arai

Niigata University ( email )

8050 Ikarashi 2 Nocho Nishi Ward
Niigata Prefecture
Niigata, 950-218
Japan

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