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Evolutionary systemic risk: Fisher information flow metric in financial network dynamics

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  • Khashanah, Khaldoun
  • Yang, Hanchao

Abstract

Recently the topic of financial network dynamics has gained renewed interest from researchers in the field of empirical systemic risk measurements. We refer to this type of network analysis as information flow networks analysis (IFNA). This paper proposes a new method that applies Fisher information metric to the evolutionary dynamics of financial networks using IFNA. Our paper is the first to apply the Fisher information metric to a set of financial time series. We introduce Evolution Index (EI) as a measure of systemic risk in financial networks. It is shown, for concrete networks with actual data of several stock markets, that the EI can be implemented as a measure of fitness of the stock market and as a leading indicator of systemic risk.

Suggested Citation

  • Khashanah, Khaldoun & Yang, Hanchao, 2016. "Evolutionary systemic risk: Fisher information flow metric in financial network dynamics," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 445(C), pages 318-327.
    • Handle: RePEc:eee:phsmap:v:445:y:2016:i:c:p:318-327
    DOI: 10.1016/j.physa.2015.10.012
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    Cited by:

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    2. Chen, Lin & Han, Qian & Qiao, Zhilin & Stanley, H. Eugene, 2020. "Correlation analysis and systemic risk measurement of regional, financial and global stock indices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 542(C).
    3. Silva, Walmir & Kimura, Herbert & Sobreiro, Vinicius Amorim, 2017. "An analysis of the literature on systemic financial risk: A survey," Journal of Financial Stability, Elsevier, vol. 28(C), pages 91-114.

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