Core–Periphery Structure in the Overnight Money Market: Evidence from the e-MID Trading Platform

Fricke, Daniel; Lux, Thomas

doi:10.1007/s10614-014-9427-x

Cited by 290 publications

(257 citation statements)

References 50 publications

(54 reference statements)

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“…Also, we know that no pronounced clusters exit in the Italian market when conditional trading volume is analyzed, see Fricke and Lux (2012). The structure of the market can at best be described as a core-periphery structure, similar to the findings by Craig and von Peter (2010) for the German market.…”

Section: Introductionsupporting

confidence: 73%

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Structure in the Italian overnight loan market

Raddant

2014

Journal of International Money and Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may Structure in the Italian Overnight Loan Market Matthias RaddantAbstract:We analyze the Italian interbank loan market from 1999 until 2010. The analysis of net trade flows shows a high imbalance caused by few large net borrowers in the market. The trading volume shows a significant drop starting in 2007, which accelerates with the Lehman default in late 2008. The network, based on trading relationships, is very dense. Hence, we try to identify strong links by looking for preferential lending relationships expressed by discounts in the loan rate. Furthermore, we estimate the dynamics of credit spreads for each bank and find that economically significant spreads for the overnight market only developed in 2010. The analysis of bilateral loan relationships reveals that in the pre-crisis era large net borrowers used to borrow at a slight discount. In the post-Lehman era borrowers with large net exposures paid more than the average market rate, which shows that the risk evaluation of market participants has changed considerably.

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Section: Introductionsupporting

confidence: 73%

“…We see a first dip here in 2002. This coincides with the year when more foreign banks entered the E-mid market, see Fricke and Lux (2012). We observe a slight increase from then on until 2008, for 2009 and 2010 we see a slight decline, which is very interesting, because it does not follow the trend of the volume figures.…”

Section: For This Issue)mentioning

confidence: 56%

Structure in the Italian overnight loan market

Raddant

2014

Journal of International Money and Finance

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“…The reason why a homogenous solution of a heterogeneous system can still be of interest, is the particular structure of the interbank network. It has been shown that in some countries the interbank network structure can be described as a tightly connected core with internationally operating banks in the centre and smaller regional banks in the periphery [25,45]. In such a structure the larger international banks in the core are of similar sizes.…”

Section: Stress Modelmentioning

confidence: 99%

Systemic Losses Due to Counterparty Risk in a Stylized Banking System

Birch

Aste

2014

J Stat Phys

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We report a study of a stylized banking cascade model investigating systemic risk caused by counterparty failure using liabilities and assets to define banks' balance sheet. In our stylized system, banks can be in two states: normally operating or distressed and the state of a bank changes from normally operating to distressed whenever its liabilities are larger than the banks' assets. The banks are connected through an interbank lending network and, whenever a bank is distressed, its creditor cannot expect the loan from the distressed bank to be repaid, potentially becoming distressed themselves. We solve the problem analytically for a homogeneous system and test the robustness and generality of the results with simulations of more complex systems. We investigate the parameter space and the corresponding distribution of operating banks mapping the conditions under which the whole system is stable or unstable. This allows us to determine how financial stability of a banking system is influenced by regulatory decisions, such as leverage; we discuss the effect of central bank actions, such as quantitative easing and we determine the cost of rescuing a distressed banking system using re-capitalisation. Finally, we estimate the stability of the UK and US banking systems comparing the years 2007 and 2012 by using real data.

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“…Probably the most famous example comes with the Siena model (Snijders et al 2010), which offers a valuable insight into peer effects on the individ-ual decision making. In the financial literature, researchers became interested in the balance sheet interconnections of financial agents such as banks (in't Veld and van Lelyveld 2014;Fricke and Lux 2014). Nevertheless, theoretical studies of networks in the economic literature typically focus on static environments (such as the mentioned balance sheet connections).…”

Section: Introductionmentioning

confidence: 99%

Contrarian Behavior, Information Networks and Heterogeneous Expectations in an Asset Pricing Model

Makarewicz

2016

Comput Econ

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This paper studies the emergence of contrarian behavior in information networks in an asset pricing model. Financial traders coordinate on similar behavior, but have heterogeneous price expectations and are influenced by friends. According to a popular belief, they are prone to herding. However, in laboratory experiments subjects use contrarian strategies. Theoretical literature on learning in networks is scarce and cannot explain this conundrum (Panchenko et al. in J Econ Dyn Control 37(12):2623-2642, 2013). The paper follows Anufriev et al. (CeNDEF Working paper 15-07, 2015) and investigates an agent-based model, in which agents forecast price with a simple general heuristic: adaptive and trend extrapolation expectations, with an additional term of (dis-)trust towards their friends' mood. Agents independently use Genetic Algorithms to optimize the parameters of the heuristic. The paper considers friendship networks of symmetric (regular lattice, fully connected) and asymmetric architecture (random, rewired, star). The main finding is that the agents learn contrarian strategies, which amplifies market turn-overs and hence price oscillations. Nevertheless, agents learn similar behavior and their forecasts remain well coordinated. The model therefore offers a natural interpretation for the difference between the experimental stylized facts and market surveys.

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Core–Periphery Structure in the Overnight Money Market: Evidence from the e-MID Trading Platform

Cited by 290 publications

References 50 publications

Structure in the Italian overnight loan market

Structure in the Italian overnight loan market

Systemic Losses Due to Counterparty Risk in a Stylized Banking System

Contrarian Behavior, Information Networks and Heterogeneous Expectations in an Asset Pricing Model

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