Legal Theory of Finance: Evidence From Global Financial Networks

SARPONG, P. K. & DEODUTT, J. 2019. Legal theory of finance: Evidence from global financial networks. Cogent economics & finance [Online]. Available: DOI/10.1080/23322039.2019.1593071.

44 Pages Posted: 19 Apr 2019

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Prince Sarpong

Centre for Financial Planning Studies

Jugjith Deodutt

University of KwaZulu-Natal - Faculty of Commerce & Management (Westville Campus)

Date Written: March 21, 2019

Abstract

Katharina Pistor proposed the Legal Theory of Finance (LTF), based on the premise that finance is legally constructed (Pistor, 2013b). In this paper, we apply network science to provide empirical evidence from global financial networks (GFN) to support the argument of the LFT. Using data from the World Bank and IMF, we confirm that the GFN is indeed hierarchical. We also show that the depth of interconnectedness in the GFN is increasing. The United States is the most important node in the GFN but temporarily lost its position to the United Kingdom in 2008. This paper shows that the most important node in the GFN can temporarily shift during major global financial events. The United Kingdom has also lost its position in the GFN to Switzerland on several measures of centrality. We further confirm that there is no evidence of a flattening of the GFN. Although some emerging economies have improved significantly in terms of GDP and international reserves, these improvements have not reflected in their positions in the GFN. We propose that the approach to regulating the global financial system should focus on more stringent rules for the most central countries in the GFN. This could be more effective in ensuring stability in the global financial system.

Keywords: legal theory of finance; elasticity of law, network science, eigenvector centrality, betweenness centrality, degree centrality

JEL Classification: G15, G20, G29

Suggested Citation

Sarpong, Prince and Deodutt, Jugjith, Legal Theory of Finance: Evidence From Global Financial Networks (March 21, 2019). SARPONG, P. K. & DEODUTT, J. 2019. Legal theory of finance: Evidence from global financial networks. Cogent economics & finance [Online]. Available: DOI/10.1080/23322039.2019.1593071.. Available at SSRN: https://ssrn.com/abstract=3357258

Prince Sarpong (Contact Author)

Centre for Financial Planning Studies ( email )

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Cape Town, western Cape 7925
South Africa
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HOME PAGE: http://www.cfps.co.za

Jugjith Deodutt

University of KwaZulu-Natal - Faculty of Commerce & Management (Westville Campus) ( email )

Durban 4000
South Africa

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