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On the distribution of links in financial networks: Structural heterogeneity and functional form

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  • Lux, Thomas

Abstract

We investigate the distribution of links in three large data-sets, one of these covering interbank loans in the electronic trading platform e-MID, the other two covering a large part of the loans of banks to non-financial companies in the Spanish and Japanese economies, respectively. In contrast to all previous literature, we do not assume homogeneity of the link distribution over time and across different categories of agents (banks, firms) but apply our hypothesized distributions as regression models. As it turns out, many of the tested sources of heterogeneity turn out to be significant regressors. For instance, we find pervasive time heterogeneity of link formation in all three data sets, and also heterogeneity for different categories of banks/firms that can be identified in the data. Across all networks, the Negative Binominal model always outperforms all alternative models confirming its good performance as a model of economic count data in many previous applications.

Suggested Citation

  • Lux, Thomas, 2017. "On the distribution of links in financial networks: Structural heterogeneity and functional form," Economics Working Papers 2017-05, Christian-Albrechts-University of Kiel, Department of Economics.
    • Handle: RePEc:zbw:cauewp:201705
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    References listed on IDEAS

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    2. Daniel Fricke & Thomas Lux, 2015. "On the distribution of links in the interbank network: evidence from the e-MID overnight money market," Empirical Economics, Springer, vol. 49(4), pages 1463-1495, December.
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    More about this item

    Keywords

    financial networks; interbank market; degree distribution; credit network;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G01 - Financial Economics - - General - - - Financial Crises
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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