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Statistical Validation of Contagion Centrality in Financial Networks

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  • Agathe Sadeghi
  • Zachary Feinstein

Abstract

In this paper, we introduce an impact centrality measure to evaluate shock propagation on financial networks capturing a notion of contagion and systemic risk contributions, permitting comparisons of these risks over time. In addition, we provide a statistical validation method when the network is estimated from data, as is done in practice. This statistical test allows us to reliably assess the computed centrality values. We validate our methodology on simulated data and conduct empirical case studies using financial data. We find that our proposed centrality measure increases significantly during times of financial distress and is able to provide insights into the (market implied) risk-levels of different firms and sectors.

Suggested Citation

  • Agathe Sadeghi & Zachary Feinstein, 2024. "Statistical Validation of Contagion Centrality in Financial Networks," Papers 2404.14337, arXiv.org, revised Feb 2025.
    • Handle: RePEc:arx:papers:2404.14337
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