Terms Of Contagion Research Articles

Dynamic patterns and the latent community structure of sectoral volatility and jump risk contagion

This study explores the latent driving structure of sectoral risk contagion in terms of volatility and jump through the factor model framework for high-dimensional matrix-valued time series. We find strong inter-sector volatility and jump spillover effects at the mean level and higher effects at extreme tails, while jump spillovers reflect sharper structural shifts with the promotion of major financial or public events. Both volatility and jump are contagious in the form of a community-structure. Our findings provide new evidence about sectoral risk contagion and the importance of accurately identifying the underlying structure of risk contagion for efficiently realizing hierarchical regulation.

Investigation and Modelling of Economic Systematic Risk and Capital Requirement: A Monte Carlo Simulation

This paper tests the ability of the regulatory capital requirement to cover credit losses at default, as carried out by the economic (optimal) capital requirement in Tunisian banks. The common factor in borrowers that leads to a credit default is systematic risk. However, the sensitivity to these factors differs between borrowers. To this end, we derived two kinds of sensitivity to systematic risk: the first is recognised by the Basel Committee; the second is derived from an economic approach. Hence, we can observe the impact of sensitivity to systematic risk on capital requirements. Empirically, we studied a sample of 100 individual borrowers from a Tunisian deposit bank that had credit in January 2020. We estimated the default probability for each borrower and then simulated their systematic risk sensitivity using the Monte Carlo approach, and compared them with the regulatory risk sensitivity. Then, we tested their effects on the economic and regulatory capital requirements. The results indicate that regulatory capital overestimates economic capital. This is due to the overestimation of borrowers’ contagion in terms of default risk, as shown by the superiority of their regulatory sensitivity systematic risk compared to the simulated risk. This leads banks to devote more capital than is really necessary to reach the regulatory standard. Hence, there was an increase in capital costs and the possibility of an arbitrage opportunity.

Between racial madness and neoliberal reason: metonymic contagion in apartheid biopower

ABSTRACT I will seek to consider the simultaneous workings of race and capital in apartheid biopower. J.M. Coetzee offers a reading of apartheid racism as racial madness which is imbricated with economic reason. In the wake of the COVID-19 pandemic, we have witnessed instances of the biopolitical making live and letting die. The Strandfontein homeless camp set up just outside Cape Town in 2020 is an instantiation of a particular normative order, wherein contagion was used to justify the movement of black, homeless people outside of the city’s cordon sanitaire. This is resonant of apartheid racial segregation in which the fear of race mixing is sometimes described in terms of contagion where whiteness represents that which is pure while blackness that which is dirty and infectious. Despite this desire for racial separation, apartheid biopower depends on exploitable black labour to sustain white domination. The figurative work of racial contagion is then undercut when the black worker is to be present and available in white areas to work. Neoliberal modes of power inherit the dual work of race and contagion in apartheid when the poor and black are let to die.

Commercial and banking credit network in Uruguay

We build a commercial credit network, identify the most central economic sectors in terms of commercial debt, and provide a more complete idea of total indebtedness and financial interlinks between firms and banks in Uruguay. “Commerce,” “manufacturing,” and “transportation, storage, and communication” are the most central sectors in the commercial credit network. In a stress testing exercise, “transportation, storage, and communication” and “hotels and restaurants” are deeply affected in all cases. These sectors are the most exposed in terms of contagion. “Commerce” and “manufacturing” are central and have the highest level of indebtedness, but they have a large amount of liquid assets, which allows them to overcome shocks from other sectors. The results highlight the importance of having a good estimation of commercial credit interlinks for financial stability analysis.

Monitoring COVID-19 contagion growth.

We present a statistical model that can be employed to monitor the time evolution of the COVID‐19 contagion curve and the associated reproduction rate. The model is a Poisson autoregression of the daily new observed cases and dynamically adapt its estimates to explain the evolution of contagion in terms of a short‐term and long‐term dependence of case counts, allowing for a comparative evaluation of health policy measures. We have applied the model to 2020 data from the countries most hit by the virus. Our empirical findings show that the proposed model describes the evolution of contagion dynamics and determines whether contagion growth can be affected by health policies. Based on our findings, we can draw two health policy conclusions that can be useful for all countries in the world. First, policy measures aimed at reducing contagion are very useful when contagion is at its peak to reduce the reproduction rate. Second, the contagion curve should be accurately monitored over time to apply policy measures that are cost‐effective.

Identification of dominant risk factor involved in spread of COVID-19 using hesitant fuzzy MCDM methodology

The outburst of the pandemic Coronavirus disease since December 2019, has severely impacted the health and economy worldwide. The epidemic is spreading fast through various means, as the virus is very infectious. Medical science is exploring a vaccine, only symptomatic treatment is possible at the moment. To contain the virus, it is required to categorize the risk factors and rank those in terms of contagion. This study aims to evaluate risk factors involved in the spread of COVID-19 and to rank them. In this work, we applied the methodology namely, Fuzzy Analytic Hierarchy Process (FAHP) to find out the weights and finally Hesitant Fuzzy Sets (HFS) with Technique for Order Preference by Similarity to Ideal Solution (TOPSIS) is applied to identify the major risk factor. The results showed that “long duration of contact with the infected person” the most significant risk factor, followed by “spread through hospitals and clinic” and “verbal spread”. We showed the appliance of the Multi Criteria Decision Making (MCDM) tools in evaluation of the most significant risk factor. Moreover, we conducted sensitivity analysis.

COVID-19 and Third Age: psychological relapses of “new behaviours”

Abstract The pandemic has forced many countries to introduce restrictions on individual freedom and to support the adoption of hygienically responsible behaviour in order to contain the spread of the infection. The elderly, one of the most fragile sections of the population, have paid and are paying the highest price in terms of contagion and deaths. In Italy, for example, the average age of patients who have died and are positive for SARS-CoV- 2 is 80 years (median 82, range 0–109, InterQuartile Range - IQR 74–88). The median age of SARSCoV- 2 positive deceased patients is over 30 years higher than that of infected patients (median age: deceased patients 82 years - infected patients 48 years) [data from Istituto Superiore di Sanita updated 18/11/2020]. It is clear that preventive measures are essential to preserve the elderly from the risk of contracting COVID- 19. The psychological impact on the elderly and their relatives of the introduction of “new behaviours” and health safety rules that greatly limit social relationships will be discussed. The medium and long term effects of the various forms of isolation that affect both those living in the family and those who are guests of dedicated facilities concern both emotional and cognitive aspects. The risk is that at the end of the pandemic emergency a large number of elderly people will face increasing levels of non-self-sufficiency and the need for medical and health interventions, which were not necessary in the pre-pandemic phase.

Vulnerable Population in Covid-19 Outbreak: A Look at Italy

We examine the population groups most exposed to Covid-19 in the Italian social and health context. These groups include, firstly, elderly and disabled people with one or more pre-existing diseases and, secondly, health workers, especially doctors and nurses, who have paid a very high price in terms of contagion and death. If elderly people are infected with the virus and become ill with severe interstitial pneumonia, they are unlikely to be admitted to intensive care units and are destined to die in a short time. Therefore, in accordance with the principle of equity recommended by the World Health Organization, some resources should be devoted to protecting these elderly persons, so that they would not come into contact with the virus. Unfortunately, the measures taken by the Italian National Government and Regional Administrations have not been effective in protecting this elderly group, as is evident from the ongoing judicial disputes. Covid-19 health care professionals are the most exposed to the risk of contagion, which increases dramatically if there are no adequate personal protection equipment. And these protections were lacking, especially in the early stages of contagion. Meaningful demonstrations of a human solidarity have happened, which have crossed the boundaries of duty to the point of sacrifice of life.

Reading Contagion: The Hazards of Reading in the Age of Print by Annika Mann

Reviewed by: Reading Contagion: The Hazards of Reading in the Age of Print by Annika Mann Travis Chi Wing Lau MANN, ANNIKA. Reading Contagion: The Hazards of Reading in the Age of Print. Charlottesville, VA: University of Virginia Press, 2018. $45.00 hardcover. xi + 257 pp. In the face of a current global pandemic, Annika Mann's Reading Contagion offers a timely historical intervention into long-standing scholarly debates about contagion as a bodily phenomenon and concept metaphor. Rather than "collapsing contagion 'as a figure' and contagion as a 'real disease'" (7), Mann turns instead to New Materialist approaches, which reframe contagion in terms of how it exposes the interconnections between human and non-human actors and the precarious networks [End Page 217] of exchange that they share. Mann also complicates the more presentist, often ahistorical quality of New Materialist narratives about the politics of animate matter by recovering the eighteenth century as a cultural moment when contagious discourses were being radically renegotiated. The typical consignment of the eighteenth century to a "noticeably static, and often negative, position" (8) has enabled theorists to flatten the Enlightenment to a period of increasing medicalization and pathology that culminates in the statewide public health programs and sanitation projects of the nineteenth century. Yet, for Mann, eighteenth-century theories of contagion complicated any easy distinctions between "human bodies and nonhuman media and objects, as well as between diseased and healthy bodies and spaces" (11). One of the central theories of contagion in this period is what Mann terms "reading contagion" or the capacity for the act of reading to "propagate embodied collectives and facilitate large-scale epidemics" through its affective and physiological effects on readers (12-13). Such capacity, Mann underscores, politicized reading in the eighteenth century. Mann joins other scholars of eighteenth-century literature and science like Tita Chico, Lucinda Cole, and Helen Thompson in arguing for the co-constitutive nature of medical and literary discourses on contagion. Recognizing that "interventions regarding health and disease were made equally by physicians, philosophers, and literary writers, who all argue that they possess particular access to the workings of the body and its surrounding world (in part because that body and its world are not fully known or made visible" (189-90), Mann decenters medical men in conventional histories of contagion by recuperating how literary writers shaped and propagated those very same theories. Through case studies of Daniel Defoe, Alexander Pope, Tobias Smollett, William Blake, Samuel Taylor Coleridge, and Mary Shelley, Mann traces how "reading contagion" both recognizes the dangers of reading as the potential for passionate readerly identification and understands that identification as potentially reformatory or curative. Though seemingly contradictory, this theory of reading—while recognizing all textual objects as potentially threatening—enabled writers to justify their own literary experiments as salves for or prophylactics against other more toxic forms of writing. The transformative potential of the literary was thus always bound up with its potentially unbounded contagiousness: communities of readers constituted by the "viral" transmission of ideas and the literal circulation of print media in a burgeoning literary marketplace. Reading Contagion is organized around the four keywords "infection," "inoculation," "propagation," and "extinction," each referring to the approach of a single author to theorize a form of "reading contagion." Mann's introductory chapter, "Reading Contagion in Eighteenth-Century Medicine," grounds her argument in the seventeenth- and eighteenth-century plague writings that get reworked through Defoe's A Journal of the Plague Year (1722) as transformative, novelistic contact with the passions and matter of other bodies. This ambivalence between reading as "transformational contact" and as risky exposure is echoed in the following chapter on Alexander Pope's Dunciad in Four Books (1743), which similarly imagines print culture as epidemic outbreak but does not absolve Pope's own work from such "toxic materialization" (50, 54). Tobias Smollett and William Blake, in the subsequent chapters, both attempt to contain and transform the contagious potential of proliferating print media: the former "inoculates" audiences by creating hybrid media forms like The History and Adventures of an Atom (1769) and The Expedition of Humphrey Clinker (1771) that are less virulently infectious (and thus less harmful), while the latter embraced "reading contagion...

Intervention on default contagion under partial information in a financial network.

We study the optimal interventions of a regulator (a central bank or government) on the illiquidity default contagion process in a large, heterogeneous, unsecured interbank lending market. The regulator has only partial information on the interbank connections and aims to minimize the fraction of final defaults with minimal interventions. We derive the analytical results of the asymptotic optimal intervention policy and the asymptotic magnitude of default contagion in terms of the network characteristics. We extend the results of Amini, Cont and Minca’s work to incorporate interventions and adopt the dynamics of Amini, Minca and Sulem’s model to build heterogeneous networks with degree sequences and initial equity levels drawn from arbitrary distributions. Our results generate insights that the optimal intervention policy is “monotonic” in terms of the intervention cost, the closeness to invulnerability and connectivity. The regulator should prioritize interventions on banks that are systematically important or close to invulnerability. Moreover, the regulator should keep intervening on a bank once having intervened on it. Our simulation results show a good agreement with the theoretical results.

Contagion between Islamic and Conventional Banks in Malaysia: Empirical Investigation using a DCC-GARCH Model

The purpose of this paper is to compare the stability, in terms of contagion, of conventional and Islamic banks in Malaysia. We use a DCC-GARCH model to estimate the dynamic conditional correlation (a measure of financial contagion) for a sample of one Islamic bank and eight conventional banks during the period from March 31, 2004 to March 18, 2014. From the empirical findings, we show that the conditional correlation between the returns of conventional and Islamic banks in Malaysia increased during the period of financial crisis. This finding implies the existence of a financial contagion effect between Islamic and conventional banks in Malaysia. Also, we find that financial contagion represents a major factor for the transmission of risk between Islamic and conventional banks.

The systemic implications of bail-in: A multi-layered network approach

One of the most important elements of the post-crisis financial reforms was to establish credible resolution frameworks allowing for creditor bail-in when banks are entering resolution. Despite the obvious benefits of shifting the burden of resolution from taxpayers to bank creditors, bank bail-ins may also give rise to costs as the financial consequences for bank shareholders and creditors being bailed in could endanger their own financial situation and potentially entail systemic implications. Using granular data on the securities cross-holdings among the largest euro area banking groups, we construct a multi-layered network model where each layer represents bail-inable securities of a specific seniority layer of the creditor hierarchy. The model can be a useful tool for resolution authorities to inform the policy discussion on both the composition and level of loss absorbing capacity of banks and the direct contagion risk following a bail-in. We find that due to low levels of securities cross-holdings in the interbank network there is no direct contagion in terms of creditor banks failing as a result of another bank being bailed in. At the same time, we document that a bail-in will have pecuniary consequences on the different liability holders and our framework allows for an exact quantification of those effects. In addition, we show that recapitalisations following a bail-in will change the network structure and hence the embedded contagion risk.

Low empathy-like behaviour in male mice associates with impaired sociability, emotional memory, physiological stress reactivity and variations in neurobiological regulations.

Deficits in empathy have been proposed to constitute a hallmark of several psychiatric disturbances like conduct disorder, antisocial and narcissistic personality disorders. Limited sensitivity to punishment, shallow or deficient affect and reduced physiological reactivity to environmental stressors have been often reported to co-occur with limited empathy and contribute to the onset of antisocial phenotypes. Empathy in its simplest form (i.e. emotional contagion) is addressed in preclinical models through the evaluation of the social transmission of emotional states: mice exposed to a painful stimulus display a higher response if in the presence of a familiar individual experiencing a higher degree of discomfort, than in isolation. In the present study, we investigated whether a reduction of emotional contagion can be considered a predictor of reduced sociality, sensitivity to punishment and physiological stress reactivity. To this aim, we first evaluated emotional contagion in a group of Balb/cJ mice and then discretised their values in four quartiles. The upper (i.e. Emotional Contagion Prone, ECP) and the lower (i.e. Emotional Contagion Resistant, ECR) quartiles constituted the experimental groups. Our results indicate that mice in the lower quartile are characterized by reduced sociability, impaired memory of negative events and dampened hypothalamic-pituitary-adrenocortical reactivity to external stressors. Furthermore, in the absence of changes in oxytocin receptor density, we show that these mice exhibit elevated concentrations of oxytocin and vasopressin and reduced density of BDNF receptors in behaviourally-relevant brain areas. Thus, not only do present results translate to the preclinical investigation of psychiatric disturbances, but also they can contribute to the study of emotional contagion in terms of its adaptive significance.

Systematic or Idiosyncratic? Spillover Effects in Corporate Bond Markets and Portfolio Implications

Periods with high financial distress and uncertainty are characterized by increased co-movement in corporate bond markets. In this paper, we study the dynamic interactions among corporate bond returns in a period from 2004 to 2016 that covers important macroeconomic, financial and political events. In particular, we provide a framework for the evaluation of contagion among corporate bonds in different regions during a period with increased financial turmoil. We measure contagion in terms of dynamic spillovers, which capture the degree of homogeneity in bond returns. Our specification distinguishes two sources of bond risk: the systematic risk and the idiosyncratic risk. To account for a market-level analysis of co-movement, we employ a panel VAR model in which the variables (bond markets) are treated as endogenous. Based on our results, the systematic risk component accounts for a larger portion of variation in bond returns relative to the idiosyncratic component, indicating the existence of homogeneity in global corporate bond markets. The emerging markets are also net receivers of international shocks, whereas innovations in U.S. bond markets contribute importantly to the instability in global bond markets.

Systemic risk and dynamics of contagion: a duplex inter-bank network

This paper constructs a duplex banking network formed by credit relationships and information interaction via the banks’ balance sheet to model the structure of systemic risk and investigate the dynamic mechanism of contagion in terms of default and liquidity infection along with the factors that affect the extent of the contagion. We systematically explain the role that duplex banking networks play in different aspects of risk contagion. Through theoretical analysis and simulations, we conclude that asymmetric information interaction would increase the inflexibility of the system, which leads to liquidity shortage and possibly the collapse of the whole market. The weakness of systemic risk in the interior of the complex banking system can be characterized by the partial discount factor using illiquid assets in the information network. By improving the connectedness of the information network of the duplex networks, the spread of contagion can be partially slowed.

Spillover dynamics for systemic risk measurement using spatial financial time series models

We extend the well-known static spatial Durbin model by introducing a time-varying spatial dependence parameter. The updating steps for this model are functions of past data and have information theoretic optimality properties. The static parameters are conveniently estimated by maximum likelihood. We establish the theoretical properties of the model and show that the maximum likelihood estimators of the static parameters are consistent and asymptotically normal. Using spatial weights based on cross-border lending data and European sovereign CDS spread data over the period 2009–2014, we find evidence of contagion in terms of high, time-varying spatial spillovers in the perceived credit riskiness of European sovereigns during the sovereign debt crisis. We find a particular downturn in spatial dependence in the second half of 2012 after the outright monetary transactions policy measures taken by the European Central Bank. Earlier non-standard monetary operations by the ECB did not induce such changes. The findings are robust to a wide range of alternative model specifications.

Bank fragility and contagion: Evidence from the bank CDS market

Understanding how contagion works among financial institutions is a top priority for regulators and policy makers who aim to foster financial stability and to prevent financial crises. Using bank credit default swap (CDS) data, we provide a framework for the evaluation of contagion among banks in different countries and regions during a period of prolonged financial distress. We measure contagion in terms of return spillovers, following a Generalized VAR (GVAR) approach. In addition, we propose an innovative framework to distinguish between two types of contagion: systematic (linked to global factors), and idiosyncratic (linked to bank specific factors). We find evidence of both types of contagion, although the spillover dynamics changed over time. Our measure of systematic contagion is always greater than the idiosyncratic component, thus highlighting the importance of common factors in the propagation of risk spillovers. This indicates that international linkages among banking markets are central to the transmission of shocks.

The Value of Financial Market Insolvency Safe Harbours

'Safe harbour' is shorthand for a bundle of privileges in insolvency which are typically afforded to financial institutions. They are remotely comparable to security interests as they provide a financial institution with a considerably better position as compared to other creditors should one of its counterparties fail or become insolvent. Safe harbours have been and continue to be introduced widely in financial markets. The common rationale for such safe harbours is that the protection they offer against the fallout of the counterparty’s insolvency contributes to systemic stability, as the dreaded ‘domino effect’ of insolvencies is not triggered from the outset. However, safe harbours also come in for criticism, being accused of accelerating contagion in the financial market in times of crisis and making the market more risky. This paper submits that the more important argument for the existence of safe harbours is liquidity in the financial market. Safe harbour rules do away with a number of legal concepts, notably those attached to traditional security, and thereby allow for the exponentiation of liquidity. Normative decisions of the legislator sanction safe harbours as modern markets could not exist without these high levels of liquidity. To the extent that safe harbours accelerate contagion in terms of crisis, which in principle is a valid argument, specific regulation is well suited to correct this situation, whereas to repeal or significantly restrict the safe harbours would be counterproductive.

Insights into European interbank network contagion

Purpose – The purpose of this paper is to analyse the importance of interbank connections and shocks on banks’ capital ratios to financial stability by looking at a network comprising a large number of European and UK banks. Design/methodology/approach – The authors model interbank contagion using insights from the Susceptible Infected Recovered model. The authors construct scale-free networks with preferential attachment and growth, applying simulated interbank data to capture the size and scale of connections in the network. The authors proceed to shock these networks per country and perform Monte Carlo simulations to calculate mean total losses and duration of infection. Finally, the authors examine the effects of contagion in terms of Core Tier 1 Capital Ratios for the affected banking systems. Findings – The authors find that shocks in smaller banking systems may cause smaller overall losses but tend to persist longer, leading to important policy implications for crisis containment. Originality/value – The authors infer the interbank domestic and cross-border exposures of banks employing an iterative proportional fitting procedure, called the RAS algorithm. The authors use an extend sample of 169 European banks, that also captures effects on the UK as well as the Eurozone interbank markets. Finally, the authors provide evidence of the contagion effect on each bank by allowing heterogeneity. The authors compare the bank’s relative financial strength with the contagion effect which is modelled by the number and the volume of bilateral connections.

Social Networks and Asset Price Dynamics

In this paper, we investigate how behavioral contagion in terms of mimetic strategy learning within a social network would affect the asset price dynamics. The characteristics of this paper are as follows. First, traders are characterized by bounded rationality and their adaptive learning behavior is represented by the genetic programming algorithm. The use of the genetic programming algorithm allows traders to freely form forecasting strategies with a great potential of variety in functional forms, which are not predetermined but may be fundamental or technical or any mix of these two broad categories, as they need to adapt to the time-varying market environment. The evolutionary nature of the genetic programming algorithm has its merit for modeling mimetic behavior in the context of information transmission in that, other than making duplicates of an entire trading rule as if a mind-reading technique exists, strategy imitation could take place down to the level of building blocks that genetic operators work out or pieces of information that constitute a strategy and are more ready to be transmitted via word-of-mouth communication, which is more intuitive compared to the existing literature. Second, the traders are spatially heterogeneous based on their positions in social networks. Mimetic learning thus takes part in local interactions among traders that are directly tied with each other when they evolve their trading strategies according to the relative performance of their own and their neighbors’. Therefore, specifically, we aim to analyze the effect of network topologies, i.e., a regular lattice, a small-world, a random network, a fully connected network, and a preferential attachment network, on market dynamics regarding price distortion, volatility, and trading volume, as information diffuses across these different social network structures.