Effects of Financial Crises on Threshold Network of World Stocks and Commodity Markets

Abstract

The core focus of the study is to investigate the impact of European crises on commodity and world stock market indices. To investigate the impact during and after crisis, the technique of threshold has been applied to make a complex network from the cross-correlations of the returns of 46 daily time series comprising of 23 global stock market indices and 23 commodity futures from 2010 to 2014. The networks are fragmented with the increase of threshold and the study detects a sturdy association between commodities and stock indices at high threshold during severe crisis of 2011. The dynamic of inter-links between two groups at threshold 0.1 show dissimilar behavior with the dynamic of inter-degrees of individual group of commodities with stock indices. The change of intra-degrees among individual groups of stock and commodities demonstrates that the effect of Cypriot crisis in first half of 2013 on financial indices is more shocking than those of commodity futures. The dynamic of clustering coefficient identifies that Asian financial indices and index of agricultural sector under commodity market are more responsive during as well as after crises. Finally, we propose a definition to measure the states of the network artifact. Identifying the dynamic movement of market state and network structure can be useful as an early warning of upcoming crisis and portfolio investment.