Liquidity Crises

Critical density for network reconstruction ArXiv ID: 2305.17285 “View on arXiv” Authors: Unknown Abstract The structure of many financial networks is protected by privacy and has to be inferred from aggregate observables. Here we consider one of the most successful network reconstruction methods, producing random graphs with desired link density and where the observed constraints (related to the market size of each node) are replicated as averages over the graph ensemble, but not in individual realizations. We show that there is a minimum critical link density below which the method exhibits an `unreconstructability’ phase where at least one of the constraints, while still reproduced on average, is far from its expected value in typical individual realizations. We establish the scaling of the critical density for various theoretical and empirical distributions of interbank assets and liabilities, showing that the threshold differs from the critical densities for the onset of the giant component and of the unique component in the graph. We also find that, while dense networks are always reconstructable, sparse networks are unreconstructable if their structure is homogeneous, while they can display a crossover to reconstructability if they have an appropriate core-periphery or heterogeneous structure. Since the reconstructability of interbank networks is related to market clearing, our results suggest that central bank interventions aimed at lowering the density of links should take network structure into account to avoid unintentional liquidity crises where the supply and demand of all financial institutions cannot be matched simultaneously. ...

The Global Financial Crisis and the Efficient Market Hypothesis: What Have We Learned? ArXiv ID: ssrn-1502815 “View on arXiv” Authors: Unknown Abstract The sharp economic downturn and turmoil in the financial markets, commonly referred to as the “global financial crisis,” has spawned an impressive outpouring of Keywords: Global Financial Crisis, Systemic Risk, Liquidity Crises, Contagion, Banking Regulation, Macro/Commodities Complexity vs Empirical Score Math Complexity: 1.5/10 Empirical Rigor: 0.5/10 Quadrant: Philosophers Why: The paper is a theoretical commentary on the Efficient Market Hypothesis (EMH) in the context of the Global Financial Crisis, discussing economic theory and historical anecdotes without mathematical proofs or empirical backtesting. flowchart TD A["Research Question: Does the GFC challenge the EMH?"] --> B["Method: Comparative Analysis"] B --> C["Data: Pre-crisis vs. Crisis Periods"] C --> D["Computational Process: Event Studies & Volatility Analysis"] D --> E["Key Findings"] E --> F["Market Inefficiency: Asset prices deviated from fundamentals"] E --> G["Systemic Risk: Contagion effects proved significant"] E --> H["Policy Implications: Enhanced banking regulation required"]