Can You Map Global Financial Stability?

Dattels, Peter; McCaughrin, Rebecca; Miyajima, Ken; Puig, Jaume

doi:10.2139/ssrn.1627080

Cited by 7 publications

(3 citation statements)

References 4 publications

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“…The model is also able to describe the dynamics of price returns by considering an analogy between the metastability in the market and that occurring in a variety of physical and complex systems [16,21], [39][40][41][42][43][44][45][46][47][48]. Our findings show that lower stability (smaller mean first hitting times) can be the result not only of large volatility, as it would be expected during periods of market "turbulence" [18], but also of small volatility, which is usually considered an indicator of "tranquil" periods. This result could bear important implications both for practitioners and policy-makers responsible for market stability.…”

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confidence: 84%

“…There, the authors argue that the end of microscopic or macroscopic trends in financial markets have a parallel with metastable physical systems. Indeed, financial market stability is often associated with moderate levels of perceived uncertainty and measured-looking at the intensity of price return fluctuations [17][18][19] or stochastic volatility estimators based on first passage time statistics [20]. However, both approaches cannot be reconciled with the observed evidence discussed above.…”

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confidence: 99%

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Stabilizing effect of volatility in financial markets

2018

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In financial markets, greater volatility is usually considered to be synonymous with greater risk and instability. However, large market downturns and upturns are often preceded by long periods where price returns exhibit only small fluctuations. To investigate this surprising feature, here we propose using the mean first hitting time, i.e., the average time a stock return takes to undergo for the first time a large negative (crashes) or positive variation (rallies), as an indicator of price stability, and relate this to a standard measure of volatility. In an empirical analysis of daily returns for 1071 stocks traded in the New York Stock Exchange, we find that this measure of stability displays nonmonotonic behavior, with a maximum, as a function of volatility. Also, we show that the statistical properties of the empirical data can be reproduced by a nonlinear Heston model. This analysis implies that, contrary to conventional wisdom, not only high, but also low volatility values can be associated with higher instability in financial markets. This proposed measure of stability can be extremely useful in risk control.

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confidence: 84%

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confidence: 99%

Stabilizing effect of volatility in financial markets

2018

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“…The most common representation of multidimensional data, yet not interactive, is based upon work by International Monetary Fund (IMF) staff on the Global Financial Stability Map (GFSM) (Dattels et al, 2010), which has sought to disentangle the sources of risks by a mapping of six composite indices with a radar-chart visualization. The aim of the GFSM coincide well with those of external risk communication: "a summary tool for communicating changes in the risks and conditions [...] in a graphical manner [...] to improve the understanding of risks and conditions [...] and ultimately to warn policymakers and market participants about the risks of inaction."…”

Section: Visual Risk Communicationmentioning

confidence: 99%

Macroprudential oversight, risk communication and visualization

Sarlin¹

2014

Preprint

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This paper discusses the role of risk communication in macroprudential oversight and of visualization in risk communication. Beyond the soar in data availability and precision, the transition from firm-centric to system-wide supervision imposes vast data needs. Moreover, except for internal communication as in any organization, broad and effective external communication of timely information related to systemic risks is a key mandate of macroprudential supervisors, further stressing the importance of simple representations of complex data. This paper focuses on the background and theory of information visualization and visual analytics, as well as techniques within these fields, as potential means for risk communication. We define the task of visualization in risk communication, discuss the structure of macroprudential data, and review visualization techniques applied to systemic risk. We conclude that two essential, yet rare, features for supporting the analysis of big data and communication of risks are analytical visualizations and interactive interfaces. For visualizing the so-called macroprudential data cube, we provide the VisRisk platform with three modules: plots, maps and networks. While VisRisk is herein illustrated with five web-based interactive visualizations of systemic risk indicators and models, the platform enables and is open to the visualization of any data from the macroprudential data cube.

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Visual Macroprudential Surveillance of Banks

Sarlin

2016

Intell. Sys. Acc. Fin. Mgmt.

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Summary We create a tool for visual surveillance of the European banking system from a macroprudential perspective. The tool performs visual dynamic clustering with the self‐organizing time map (SOTM) to visualize evolving multivariate data from two viewpoints: (i) multivariate cluster structures, and (ii) univariate drivers of changes in structures. In assessing the European banking system, the main tasks the SOTM can be used for are (i) identifying structural changes and breaking points in a large number of risk indicators, and their specific location in the cross‐section, and (ii) identifying the build‐up of, or generally changes in, individual risk indicators in the banking system as a whole. While the former view provides indications of changes in the banking system, the latter describes the sources of these changes. Copyright © 2016 John Wiley & Sons, Ltd.

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Can You Map Global Financial Stability?

Cited by 7 publications

References 4 publications

Stabilizing effect of volatility in financial markets

Stabilizing effect of volatility in financial markets

Macroprudential oversight, risk communication and visualization

Visual Macroprudential Surveillance of Banks

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