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on Network Economics |
| By: | Juli\'an Chitiva; Xavier Venel |
| Abstract: | We develop an extension of the classical model of DeGroot (1974) to a continuum of agents when they interact among them according to a DiKernel $W$. We show that, under some regularity assumptions, the continuous model is the limit case of the discrete one. We provide some applications of this result. First, we establish a canonical way to reduce the dimensionality of matrices by comparing matrices of different dimensions in the space of DiKernels. Then, we develop a model of Lobby Competition where two lobbies compete to bias the opinion of a continuum of agents. We give sufficient conditions for the existence of a Nash Equilibrium. Furthermore, we establish the conditions under which a Nash Equilibrium of the game induce an $\varepsilon$-Nash Equilibrium of the discretization of the game. Finally, we put forward some elements for the characterization of equilibrium strategies. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.11710 |
| By: | Patrick Allmis |
| Abstract: | Agents with different ideologies often form alliances to achieve their goals. Paradoxically, ideologically similar agents are often opponents. In this paper, ideologically heterogeneous agents choose the ideological composition of their neighborhood, their tolerance, and invest into connections. The resulting weighted network describes allies, opponents, and strengths. Disputes with opponents determine benefits, which increase in an agent's strength and cohesion. Cohesive agents have fewer mutual allies with opponents. In equilibrium, the network is segregated when cohesion is effective enough and some agents tolerate ideologically distant types to oppose closer ones. Subsidizing connections dampens polarization in societies on the verge of segregation. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.14045 |
| By: | Paolo Bartesaghi; Fernando Diaz-Diaz; Rosanna Grassi; Pierpaolo Uberti |
| Abstract: | We show that the global balance index of financial correlation networks can be used as a systemic risk measure. We define the global balance of a network starting from a diffusive process that describes how the information spreads across nodes in a network, providing an alternative derivation to the usual combinatorial one. The steady state of this process is the solution of a linear system governed by the exponential of the replication matrix of the process. We provide a bridge between the numerical stability of this linear system, measured by the condition number in an opportune norm, and the structural predictability of the underlying signed network. The link between the condition number and related systemic risk measures, such as the market rank indicators, allows the global balance index to be interpreted as a new systemic risk measure. A comprehensive empirical application to real financial data finally confirms that the global balance index of the financial correlation network represents a valuable and effective systemic risk indicator. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.14272 |
| By: | Fabrizio Lillo; Giorgio Rizzini |
| Abstract: | Modelling how a shock propagates in a temporal network and how the system relaxes back to equilibrium is challenging but important in many applications, such as financial systemic risk. Most studies so far have focused on shocks hitting a link of the network, while often it is the node and its propensity to be connected that are affected by a shock. Using as starting point the configuration model, a specific Exponential Random Graph model, we propose a vector autoregressive (VAR) framework to analytically compute the Impulse Response Function (IRF) of a network metric conditional to a shock on a node. Unlike the standard VAR, the model is a nonlinear function of the shock size and the IRF depends on the state of the network at the shock time. We propose a novel econometric estimation method that combines the Maximum Likelihood Estimation and Kalman filter to estimate the dynamics of the latent parameters and compute the IRF, and we apply the proposed methodology to the dynamical network describing the electronic Market of Interbank Deposit (e-MID). |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.09340 |
| By: | Riccardo De Blasis; Luca Galati; Rosanna Grassi; Giorgio Rizzini |
| Abstract: | This paper investigates the cryptocurrency network of the FTX exchange during the collapse of its native token, FTT, to understand how network structures adapt to significant financial disruptions, by exploiting vertex centrality measures. Using proprietary data on the transactional relationships between various cryptocurrencies, we construct the filtered correlation matrix to identify the most significant relations in the FTX and Binance markets. By using suitable centrality measures - closeness and information centrality - we assess network stability during FTX's bankruptcy. The findings document the appropriateness of such vertex centralities in understanding the resilience and vulnerabilities of financial networks. By tracking the changes in centrality values before and during the FTX crisis, this study provides useful insights into the structural dynamics of the cryptocurrency market. Results reveal how different cryptocurrencies experienced shifts in their network roles due to the crisis. Moreover, our findings highlight the interconnectedness of cryptocurrency markets and how the failure of a single entity can lead to widespread repercussions that destabilize other nodes of the network. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.12683 |
| By: | Andrew Clare; Carlos Manuel Pinheiro; Alberto Franco Pozzolo |
| Abstract: | Being uninvolved in day-to-day management of a company, Non-Executive Directors (NEDs) are arguably well-suited to oversee the drive for more sustainable business practices. Our study explores the correlation between the professional capital of NEDs and ESG performance for a sample of FTSE-350 listed companies spanning the years 2012 to 2022. Our findings reveal that board connectedness, particularly the simultaneous presence on boards of companies exhibiting superior ESG performance, significantly influences a company's overall ESG score. Our results highlight the relevance of board capital on corporate ESG performance, with practical implications for corporate governance. |
| Keywords: | ESG; Corporate Governance; Boards: Non-executive directors; Network Centrality |
| JEL: | G34 M14 D22 Q56 |
| Date: | 2024–08–06 |
| URL: | https://d.repec.org/n?u=RePEc:csl:devewp:494 |