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"Caldarelli, Guido"
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Pathways towards instability in financial networks
Following the financial crisis of 2007–2008, a deep analogy between the origins of instability in financial systems and complex ecosystems has been pointed out: in both cases, topological features of network structures influence how easily distress can spread within the system. However, in financial network models, the details of how financial institutions interact typically play a decisive role, and a general understanding of precisely how network topology creates instability remains lacking. Here we show how processes that are widely believed to stabilize the financial system, that is, market integration and diversification, can actually drive it towards instability, as they contribute to create cyclical structures which tend to amplify financial distress, thereby undermining systemic stability and making large crises more likely. This result holds irrespective of the details of how institutions interact, showing that policy-relevant analysis of the factors affecting financial stability can be carried out while abstracting away from such details.
The spread of instabilities in financial systems, similarly to ecosystems, is influenced by topological features of the underlying network structures. Here the authors show, independently of specific financial models, that market integration and diversification can drive the system towards instability.
Journal Article
DebtRank: A Microscopic Foundation for Shock Propagation
The DebtRank algorithm has been increasingly investigated as a method to estimate the impact of shocks in financial networks, as it overcomes the limitations of the traditional default-cascade approaches. Here we formulate a dynamical \"microscopic\" theory of instability for financial networks by iterating balance sheet identities of individual banks and by assuming a simple rule for the transfer of shocks from borrowers to lenders. By doing so, we generalise the DebtRank formulation, both providing an interpretation of the effective dynamics in terms of basic accounting principles and preventing the underestimation of losses on certain network topologies. Depending on the structure of the interbank leverage matrix the dynamics is either stable, in which case the asymptotic state can be computed analytically, or unstable, meaning that at least one bank will default. We apply this framework to a dataset of the top listed European banks in the period 2008-2013. We find that network effects can generate an amplification of exogenous shocks of a factor ranging between three (in normal periods) and six (during the crisis) when we stress the system with a 0.5% shock on external (i.e. non-interbank) assets for all banks.
Journal Article
Science vs Conspiracy: Collective Narratives in the Age of Misinformation
The large availability of user provided contents on online social media facilitates people aggregation around shared beliefs, interests, worldviews and narratives. In spite of the enthusiastic rhetoric about the so called collective intelligence unsubstantiated rumors and conspiracy theories-e.g., chemtrails, reptilians or the Illuminati-are pervasive in online social networks (OSN). In this work we study, on a sample of 1.2 million of individuals, how information related to very distinct narratives-i.e. main stream scientific and conspiracy news-are consumed and shape communities on Facebook. Our results show that polarized communities emerge around distinct types of contents and usual consumers of conspiracy news result to be more focused and self-contained on their specific contents. To test potential biases induced by the continued exposure to unsubstantiated rumors on users' content selection, we conclude our analysis measuring how users respond to 4,709 troll information-i.e. parodistic and sarcastic imitation of conspiracy theories. We find that 77.92% of likes and 80.86% of comments are from users usually interacting with conspiracy stories.
Journal Article
The network of plants volatile organic compounds
Plants emission of Volatile Organic Compounds (VOCs) is involved in a wide class of ecological functions, as VOCs play a crucial role in plants interactions with biotic and abiotic factors. Accordingly, they vary widely across species and underpin differences in ecological strategy. In this paper, VOCs spontaneously emitted by 109 plant species (belonging to 56 different families) have been qualitatively and quantitatively analysed in order to provide an alternative classification of plants species. In particular, by using bipartite networks methodology from Complex Network Theory, and through the application of community detection algorithms, we show that is possible to classify species according to chemical classes such as terpenes and sulfur compounds. Such complex network analysis allows to uncover hidden plants relationships related to their evolutionary and adaptation to the environment story.
Journal Article
DebtRank: Too Central to Fail? Financial Networks, the FED and Systemic Risk
Systemic risk, here meant as the risk of default of a large portion of the financial system, depends on the network of financial exposures among institutions. However, there is no widely accepted methodology to determine the systemically important nodes in a network. To fill this gap, we introduce, DebtRank, a novel measure of systemic impact inspired by feedback-centrality. As an application, we analyse a new and unique dataset on the USD 1.2 trillion FED emergency loans program to global financial institutions during 2008–2010. We find that a group of 22 institutions, which received most of the funds, form a strongly connected graph where each of the nodes becomes systemically important at the peak of the crisis. Moreover, a systemic default could have been triggered even by small dispersed shocks. The results suggest that the debate on too-big-to-fail institutions should include the even more serious issue of too-central-to-fail.
Journal Article
Opinion dynamics on interacting networks: media competition and social influence
The inner dynamics of the multiple actors of the informations systems – i.e, T.V., newspapers, blogs, social network platforms, – play a fundamental role on the evolution of the public opinion. Coherently with the recent history of the information system (from few main stream media to the massive diffusion of socio-technical system), in this work we investigate how main stream media signed interaction might shape the opinion space. In particular we focus on how different size (in the number of media) and interaction patterns of the information system may affect collective debates and thus the opinions' distribution. We introduce a sophisticated computational model of opinion dynamics which accounts for the coexistence of media and gossip as separated mechanisms and for their feedback loops. The model accounts also for the effect of the media communication patterns by considering both the simple case where each medium mimics the behavior of the most successful one (to maximize the audience) and the case where there is polarization and thus competition among media memes. We show that plurality and competition within information sources lead to stable configurations where several and distant
cultures
coexist.
Journal Article
The Effects of Twitter Sentiment on Stock Price Returns
Social media are increasingly reflecting and influencing behavior of other complex systems. In this paper we investigate the relations between a well-known micro-blogging platform Twitter and financial markets. In particular, we consider, in a period of 15 months, the Twitter volume and sentiment about the 30 stock companies that form the Dow Jones Industrial Average (DJIA) index. We find a relatively low Pearson correlation and Granger causality between the corresponding time series over the entire time period. However, we find a significant dependence between the Twitter sentiment and abnormal returns during the peaks of Twitter volume. This is valid not only for the expected Twitter volume peaks (e.g., quarterly announcements), but also for peaks corresponding to less obvious events. We formalize the procedure by adapting the well-known \"event study\" from economics and finance to the analysis of Twitter data. The procedure allows to automatically identify events as Twitter volume peaks, to compute the prevailing sentiment (positive or negative) expressed in tweets at these peaks, and finally to apply the \"event study\" methodology to relate them to stock returns. We show that sentiment polarity of Twitter peaks implies the direction of cumulative abnormal returns. The amount of cumulative abnormal returns is relatively low (about 1-2%), but the dependence is statistically significant for several days after the events.
Journal Article
A New Metrics for Countries' Fitness and Products' Complexity
Classical economic theories prescribe specialization of countries industrial production. Inspection of the country databases of exported products shows that this is not the case: successful countries are extremely diversified, in analogy with biosystems evolving in a competitive dynamical environment. The challenge is assessing quantitatively the non-monetary competitive advantage of diversification which represents the hidden potential for development and growth. Here we develop a new statistical approach based on coupled non-linear maps, whose fixed point defines a new metrics for the country Fitness and product Complexity. We show that a non-linear iteration is necessary to bound the complexity of products by the fitness of the less competitive countries exporting them. We show that, given the paradigm of economic complexity, the correct and simplest approach to measure the competitiveness of countries is the one presented in this work. Furthermore our metrics appears to be economically well-grounded.
Journal Article