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Working Paper
Liquidity Networks, Interconnectedness, and Interbank Information Asymmetry
Network analysis has demonstrated that interconnectedness among market participants results in spillovers, amplifies or absorbs shocks, and creates other nonlinear effects that ultimately affect market health. In this paper, we propose a new directed network construct, the liquidity network, to capture the urgency to trade by connecting the initiating party in a trade to the passive party. Alongside the conventional trading network connecting sellers to buyers, we show both network types complement each other: Liquidity networks reveal valuable information, particularly when information ...
Working Paper
Interconnectedness in the Interbank Market
We study the behavior of the interbank market before, during and after the 2008 financial crisis. Leveraging recent advances in network analysis, we study two network structures, a correlation network based on publicly traded bank returns, and a physical network based on interbank lending transactions. While the two networks behave similarly pre-crisis, during the crisis the correlation network shows an increase in interconnectedness while the physical network highlights a marked decrease in interconnectedness. Moreover, these networks respond differently to monetary and macroeconomic shocks. ...
Working Paper
Interconnectedness in the Corporate Bond Market
Does interconnectedness improve market quality? Yes.We develop an alternative network structure, the assets network: assets are connected if they are held by the same investors. We use several large datasets to build the assets network for the corporate bond market. Through careful identification strategies based on the COVID-19 shock and “fallen angels,” we find that interconnectedness improves market quality especially during stress periods. Our findings contribute to the debate on the role of interconnectedness in financial markets and show that highly interconnected corporate bonds ...