Financial crisis and global market couplings

Wei Cao, Yves Demazeau, Longbing Cao, Weidong Zhu

Research output: Chapter in Book/Report/Conference proceedingConference proceeding contributionpeer-review

2 Citations (Scopus)

Abstract

The global financial crisis occurred in 2007 and its severe damaging consequences on other global financial markets, show the great importance of understanding the impact and contagion between different financial markets. A variety of methods have been proposed and implemented on market contagion. However, most of the existing literature simply test the existence of market contagion in financial crisis, and there is limited work go deep to investigate the complex market couplings which are the essence of market contagion. This is indeed very difficult as it involves the selection of discriminative indicators, the different types of couplings (intra-market coupling, inter-market coupling), the hidden characteristic of couplings, and the evaluation of market couplings in understanding crisis. To address these issues, this paper proposes a CHMM-LR framework to investigate the relations between financial crisis and three pairwise market couplings from three typical global financial markets: Equity market, Commodity market and Interest market. We adopt Coupled Hidden Markov Model (CHMM) to capture the complex hidden pairwise market couplings, and the financial crisis forecasting abilities based on different pairwise market couplings are imported to measure the relations by Logistic Regression (LR). Experiments of real financial data during the period 1990 to 2010 show the advantages of market couplings in understanding crisis. In addition, the experimental results provide crucial interpretation for the 2008 global financial crisis periods identification.

Original languageEnglish
Title of host publicationProceedings of the 2015 IEEE International Conference on Data Science and Advanced Analytics (IEEE DSAA'2015)
EditorsEric Gaussier, Longbing Cao, Patrick Gallinari, James Kwok, Gabriella Pasi, Osmar Zaiane
Place of PublicationPiscataway, NJ
PublisherInstitute of Electrical and Electronics Engineers (IEEE)
Number of pages10
ISBN (Electronic)9781467382731
ISBN (Print)9781467382724
DOIs
Publication statusPublished - 2015
Externally publishedYes
EventIEEE International Conference on Data Science and Advanced Analytics, DSAA 2015 - Paris, France
Duration: 19 Oct 201521 Oct 2015

Conference

ConferenceIEEE International Conference on Data Science and Advanced Analytics, DSAA 2015
Country/TerritoryFrance
CityParis
Period19/10/1521/10/15

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