Causality Networks of Financial Assets
Journal of Network Theory in Finance, Volume 3, Issue 2, pp 17-67, June 2017, DOI: 10.21314/JNTF.2017.029
73 Pages Posted: 22 Dec 2016 Last revised: 20 Jul 2017
Date Written: December 22, 2016
Through financial network analysis we ascertain the existence of important causal behavior among certain financial assets, as inferred by eight different causality methods. Our results contradict the Efficient Market Hypothesis and open new horizons for further investigation and possible arbitrage opportunities. Moreover, we find some evidence that two of the causality methods used, at least to some extent, could warn us about the financial crisis of 2007-2009. Furthermore, we test the similarity percentage of the eight causality methods and we find that the most similar pair of causality-induced networks is on average less than 50% similar throughout the time period examined, rendering thus the comparability and substitutability among those causality methods rather dubious. We also rank both the causal relationships and the assets in terms of overall causality exertion and we find that there is an underlying bonds regime almost monopolising in some cases the realm of causality. Finally, we observe a recurring pattern of Oil's rising role as the financial network faces the Chinese stock market crash.
Keywords: Causality, Efficient Market Hypothesis, Network Theory, Bonds, Oil
JEL Classification: C01; G14; G10; L14
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