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Cumming DJ, Martinez-Salgueiro A, Reardon RS, Sewaid A. COVID-19 bust, policy response, and rebound: equity crowdfunding and P2P versus banks. JOURNAL OF TECHNOLOGY TRANSFER 2021; 47:1825-1846. [PMID: 34690426 PMCID: PMC8520110 DOI: 10.1007/s10961-021-09899-6] [Citation(s) in RCA: 5] [Impact Index Per Article: 1.7] [Reference Citation Analysis] [Abstract] [Key Words] [Track Full Text] [Download PDF] [Figures] [Journal Information] [Subscribe] [Scholar Register] [Accepted: 09/29/2021] [Indexed: 11/28/2022]
Abstract
Traditional intermediaries have the ability and the incentive to intertemporarily smooth outcomes. Fintechs, such as peer-to-peer (P2P) lending platforms and equity crowdfunding (ECF) platforms, enable riskier projects without regard to intertemporal smoothing. U.S. data from May 2016 to June 2020 show that COVID-19 had an adverse impact on bank consumer lending. However, counter to our expectations, ECF and P2P are much more stable, timely, and resilient in the COVID-19 crisis compared to bank consumer lending. Moreover, the data indicate that P2P lending is a leading indicator for bank consumer lending and that bank consumer lending substitutes ECF. The policy response—CARES Act—caused: (1) a significant increase in ECF volumes, (2) a substantial rebound to bank consumer lending, and iii) at best, neutralized an already-stabilized level of P2P lending.
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Affiliation(s)
- Douglas J. Cumming
- College of Business, Florida Atlantic University, 777 Glades Road, Boca Raton, FL 33431 USA
- Birmingham Business School, University of Birmingham, University House, 116 Edgbaston Park Rd, Birmingham, B15 2TY United Kingdom
| | - Andrea Martinez-Salgueiro
- Faculty of Economics and Business, University of Santiago de Compostela, Avenida do Burgo, Campus Norte, 15782 Santiago de Compostela, Spain
| | - Robert S. Reardon
- College of Business, Florida Atlantic University, 777 Glades Road, Boca Raton, FL 33431 USA
| | - Ahmed Sewaid
- Insper Institute of Education and Research, Rua Quatá, 300-Vila Olímpia, São Paulo, SP 04546-042 Brazil
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Nin J, Salbanya B, Fleurquin P, Tomás E, Arenas A, Ramasco JJ. Modeling financial distress propagation on customer-supplier networks. CHAOS (WOODBURY, N.Y.) 2021; 31:053119. [PMID: 34240938 DOI: 10.1063/5.0041104] [Citation(s) in RCA: 0] [Impact Index Per Article: 0] [Reference Citation Analysis] [Abstract] [Track Full Text] [Subscribe] [Scholar Register] [Received: 12/19/2020] [Accepted: 04/27/2021] [Indexed: 06/13/2023]
Abstract
Financial networks have been the object of intense quantitative analysis during the last few decades. Their structure and the dynamical processes on top of them are of utmost importance to understand the emergent collective behavior behind economic and financial crises. In this paper, we propose a stylized model to understand the "domino effect" of distress in client-supplier networks. We provide a theoretical analysis of the model, and we apply it to several synthetic networks and a real customer-supplier network, supplied by one of the largest banks in Europe. Besides, the proposed model allows us to investigate possible scenarios for the functioning of the financial distress propagation and to assess the economic health of the full network. The main novelty of this model is the combination of two stochastic terms: an additive noise, accounting by the capability of trading and paying obligations, and a multiplicative noise representing the variations of the market. Both parameters are crucial to determining the maximum default probability and the diffusion process characteristics.
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Affiliation(s)
- Jordi Nin
- ESADE, Universitat Ramon Llull, 08034 Barcelona, Spain
| | | | - Pablo Fleurquin
- Instituto de Física Interdisciplinar y Sistemas Complejos (IFISC), CSIC-UIB, 07122 Palma de Mallorca, Spain
| | - Elena Tomás
- Repsol Data & Analytics Hub, 28935 Madrid, Spain
| | - Alex Arenas
- Departament Enginyeria Informàtica i Matemàtiques, Universitat Rovira i Virgili, 43007 Tarragona, Spain
| | - José J Ramasco
- Instituto de Física Interdisciplinar y Sistemas Complejos (IFISC), CSIC-UIB, 07122 Palma de Mallorca, Spain
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Bai X, Sun H, Lu S, Taghizadeh-Hesary F. A Review of Micro-Based Systemic Risk Research from Multiple Perspectives. ENTROPY 2020; 22:e22070711. [PMID: 33286483 PMCID: PMC7517248 DOI: 10.3390/e22070711] [Citation(s) in RCA: 1] [Impact Index Per Article: 0.3] [Reference Citation Analysis] [Abstract] [Key Words] [Track Full Text] [Download PDF] [Figures] [Subscribe] [Scholar Register] [Received: 05/24/2020] [Revised: 06/13/2020] [Accepted: 06/17/2020] [Indexed: 11/16/2022]
Abstract
The Covid-19 pandemic has brought about a heavy impact on the world economy, which arouses growing concerns about potential systemic risk, taking place in countries and regions. At this critical moment, it makes sense to interpret the systemic risk from the perspective of the financial crisis framework. By combing the latest research on systemic risks, we may arrive at some precautions relating to the current events. This literature review verifies the origin of systemic risk research. By comparing the retrieved and screened systemic literature with the relevant research on the financial crisis, more focus on the micro-foundations of systemic risk has been discovered. Besides, the measurement methods of systemic risks and the introduction of interdisciplinary methods have made the research in this field particularly active. This paper synthesizes the previous research conclusions to find the appropriate definition of systemic risk and combs the research literature of systemic risk from two lines: Firstly, conducting the division according to the sub-branch fields within the financial discipline and the relevant interdisciplinary research methods, which is helpful for scholars within and outside the discipline to have a more systematic understanding of the research in this field. Secondly predicting the research direction that can be expanded in this field.
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Affiliation(s)
- Xiao Bai
- Faculty of Economics and Management, East China Normal University, Shanghai 200062, China;
- School of Finance, Zhejiang University of Finance and Economics, Hangzhou 310018, China
| | - Huaping Sun
- Institute of Industrial Economics, Jiangsu University, Zhenjiang 212013, China
- Correspondence: (H.S.); (F.T.-H.)
| | - Shibao Lu
- School of Public Administration, Zhejiang University of Finance and Economics, Hangzhou 310018, China;
| | - Farhad Taghizadeh-Hesary
- Social Science Research Institute, Tokai University, Hiratsuka-shi 259-1292, Kanagawa-ken, Japan
- Correspondence: (H.S.); (F.T.-H.)
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Abstract
We reverse engineer dynamics of financial contagion to find the scenario of smallest exogenous shock that, should it occur, would lead to a given final systemic loss. This reverse stress test can be used to identify the potential triggers of systemic events, and it removes the arbitrariness in the selection of shock scenarios in stress testing. We consider in particular the case of distress propagation in an interbank market, and we study a network of 44 European banks, which we reconstruct using data collected from banks statements. By looking at the distribution across banks of the size of smallest exogenous shocks we rank banks in terms of their systemic importance, and we show the effectiveness of a policy with capital requirements based on this ranking. We also study the properties of smallest exogenous shocks as a function of the parameters that determine the endogenous amplification of shocks. We find that the size of smallest exogenous shocks reduces and that the distribution across banks becomes more localized as the system becomes more unstable.
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Abstract
This paper studies P2P lending and the factors explaining loan default. This is an important issue because in P2P lending individual investors bear the credit risk, instead of financial institutions, which are experts in dealing with this risk. P2P lenders suffer a severe problem of information asymmetry, because they are at a disadvantage facing the borrower. For this reason, P2P lending sites provide potential lenders with information about borrowers and their loan purpose. They also assign a grade to each loan. The empirical study is based on loans' data collected from Lending Club (N = 24,449) from 2008 to 2014 that are first analyzed by using univariate means tests and survival analysis. Factors explaining default are loan purpose, annual income, current housing situation, credit history and indebtedness. Secondly, a logistic regression model is developed to predict defaults. The grade assigned by the P2P lending site is the most predictive factor of default, but the accuracy of the model is improved by adding other information, especially the borrower's debt level.
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Mancino ME, Recchioni MC. Fourier Spot Volatility Estimator: Asymptotic Normality and Efficiency with Liquid and Illiquid High-Frequency Data. PLoS One 2015; 10:e0139041. [PMID: 26421617 PMCID: PMC4589382 DOI: 10.1371/journal.pone.0139041] [Citation(s) in RCA: 13] [Impact Index Per Article: 1.4] [Reference Citation Analysis] [Abstract] [MESH Headings] [Track Full Text] [Download PDF] [Figures] [Journal Information] [Subscribe] [Scholar Register] [Received: 06/09/2015] [Accepted: 09/07/2015] [Indexed: 12/02/2022] Open
Abstract
The recent availability of high frequency data has permitted more efficient ways of computing volatility. However, estimation of volatility from asset price observations is challenging because observed high frequency data are generally affected by noise-microstructure effects. We address this issue by using the Fourier estimator of instantaneous volatility introduced in Malliavin and Mancino 2002. We prove a central limit theorem for this estimator with optimal rate and asymptotic variance. An extensive simulation study shows the accuracy of the spot volatility estimates obtained using the Fourier estimator and its robustness even in the presence of different microstructure noise specifications. An empirical analysis on high frequency data (U.S. S&P500 and FIB 30 indices) illustrates how the Fourier spot volatility estimates can be successfully used to study intraday variations of volatility and to predict intraday Value at Risk.
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Helbing D, Brockmann D, Chadefaux T, Donnay K, Blanke U, Woolley-Meza O, Moussaid M, Johansson A, Krause J, Schutte S, Perc M. Saving Human Lives: What Complexity Science and Information Systems can Contribute. JOURNAL OF STATISTICAL PHYSICS 2015; 158:735-781. [PMID: 26074625 PMCID: PMC4457089 DOI: 10.1007/s10955-014-1024-9] [Citation(s) in RCA: 109] [Impact Index Per Article: 12.1] [Reference Citation Analysis] [Abstract] [Key Words] [Track Full Text] [Subscribe] [Scholar Register] [Received: 01/31/2014] [Accepted: 05/20/2014] [Indexed: 05/03/2023]
Abstract
We discuss models and data of crowd disasters, crime, terrorism, war and disease spreading to show that conventional recipes, such as deterrence strategies, are often not effective and sufficient to contain them. Many common approaches do not provide a good picture of the actual system behavior, because they neglect feedback loops, instabilities and cascade effects. The complex and often counter-intuitive behavior of social systems and their macro-level collective dynamics can be better understood by means of complexity science. We highlight that a suitable system design and management can help to stop undesirable cascade effects and to enable favorable kinds of self-organization in the system. In such a way, complexity science can help to save human lives.
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Affiliation(s)
- Dirk Helbing
- ETH Zurich, Swiss Federal Institute of Technology, 8092 Zurich, Switzerland
- Risk Center, ETH Zurich, Swiss Federal Institute of Technology, 8092 Zurich, Switzerland
| | - Dirk Brockmann
- Robert Koch-Institute, 13353 Berlin, Germany
- Institute for Theoretical Biology, Humboldt-University, 10115 Berlin, Germany
| | - Thomas Chadefaux
- ETH Zurich, Swiss Federal Institute of Technology, 8092 Zurich, Switzerland
| | - Karsten Donnay
- ETH Zurich, Swiss Federal Institute of Technology, 8092 Zurich, Switzerland
| | - Ulf Blanke
- Wearable Computing Laboratory, ETH Zurich, Swiss Federal Institute of Technology, 8092 Zurich, Switzerland
| | | | - Mehdi Moussaid
- Center for Adaptive Rationality (ARC), Max Planck Institute for Human Development, 14195 Berlin, Germany
| | - Anders Johansson
- Centre for Advanced Spatial Analysis, University College London, London, W1T 4TJ UK
- Systems Centre, Department of Civil Engineering, University of Bristol, Bristol, BS8 1UB UK
| | - Jens Krause
- Department of Biology and Ecology of Fishes, Leibniz-Institute of Freshwater Ecology and Inland Fisheries, 12587 Berlin, Germany
| | - Sebastian Schutte
- Center for Comparative and International Studies, ETH Zurich, Swiss Federal Institute of Technology, 8092 Zurich, Switzerland
| | - Matjaž Perc
- Faculty of Natural Sciences and Mathematics, University of Maribor, 2000 Maribor, Slovenia
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Wray CM, Bishop SR. Cascades on a stochastic pulse-coupled network. Sci Rep 2014; 4:6355. [PMID: 25213626 PMCID: PMC4161966 DOI: 10.1038/srep06355] [Citation(s) in RCA: 4] [Impact Index Per Article: 0.4] [Reference Citation Analysis] [Abstract] [Track Full Text] [Download PDF] [Figures] [Journal Information] [Subscribe] [Scholar Register] [Received: 05/21/2014] [Accepted: 08/26/2014] [Indexed: 11/09/2022] Open
Abstract
While much recent research has focused on understanding isolated cascades of networks, less attention has been given to dynamical processes on networks exhibiting repeated cascades of opposing influence. An example of this is the dynamic behaviour of financial markets where cascades of buying and selling can occur, even over short timescales. To model these phenomena, a stochastic pulse-coupled oscillator network with upper and lower thresholds is described and analysed. Numerical confirmation of asynchronous and synchronous regimes of the system is presented, along with analytical identification of the fixed point state vector of the asynchronous mean field system. A lower bound for the finite system mean field critical value of network coupling probability is found that separates the asynchronous and synchronous regimes. For the low-dimensional mean field system, a closed-form equation is found for cascade size, in terms of the network coupling probability. Finally, a description of how this model can be applied to interacting agents in a financial market is provided.
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Affiliation(s)
- C. M. Wray
- Department of Mathematics, University College London Gower Street, London WCIE 6BT, UK
| | - S. R. Bishop
- Department of Mathematics, University College London Gower Street, London WCIE 6BT, UK
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Loepfe L, Cabrales A, Sánchez A. Towards a proper assignment of systemic risk: the combined roles of network topology and shock characteristics. PLoS One 2013; 8:e77526. [PMID: 24147017 PMCID: PMC3798718 DOI: 10.1371/journal.pone.0077526] [Citation(s) in RCA: 15] [Impact Index Per Article: 1.4] [Reference Citation Analysis] [Abstract] [MESH Headings] [Track Full Text] [Download PDF] [Figures] [Journal Information] [Subscribe] [Scholar Register] [Received: 07/03/2013] [Accepted: 09/12/2013] [Indexed: 11/18/2022] Open
Abstract
The 2007-2008 financial crisis solidified the consensus among policymakers that a macro-prudential approach to regulation and supervision should be adopted. The currently preferred policy option is the regulation of capital requirements, with the main focus on combating procyclicality and on identifying the banks that have a high systemic importance, those that are “too big to fail”. Here we argue that the concept of systemic risk should include the analysis of the system as a whole and we explore systematically the most important properties for policy purposes of networks topology on resistance to shocks. In a thorough study going from analytical models to empirical data, we show two sharp transitions from safe to risky regimes: 1) diversification becomes harmful with just a small fraction (~2%) of the shocks sampled from a fat tailed shock distributions and 2) when large shocks are present a critical link density exists where an effective giant cluster forms and most firms become vulnerable. This threshold depends on the network topology, especially on modularity. Firm size heterogeneity has important but diverse effects that are heavily dependent on shock characteristics. Similarly, degree heterogeneity increases vulnerability only when shocks are directed at the most connected firms. Furthermore, by studying the structure of the core of the transnational corporation network from real data, we show that its stability could be clearly increased by removing some of the links with highest centrality betweeness. Our results provide a novel insight and arguments for policy makers to focus surveillance on the connections between firms, in addition to capital requirements directed at the nodes.
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Affiliation(s)
- Lasse Loepfe
- Grupo Interdisciplinar de Sistemas Complejos, Departament of Mathematics, Universidad Carlos III de Madrid, Leganés, Madrid, Spain
- * E-mail:
| | - Antonio Cabrales
- Department of Economics, University College London, London, United Kingdom
| | - Angel Sánchez
- Grupo Interdisciplinar de Sistemas Complejos, Departament of Mathematics, Universidad Carlos III de Madrid, Leganés, Madrid, Spain
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