Journal of Network Theory in Finance

Before discussing the current issue, I would like to invite all readers to the journal's second conference: "Financial Risk and Network Theory 2015" on September 9, 2015 at Cambridge University. The conference follows our successful inaugural conference held last year. More details are available on the conference website and a call for papers and presentation can be found at www.risk.net/static/call-for-papers.

The conference will provide a unique overview of cutting-edge research in the field and selected papers accepted for the conference will be published in future issues of The Journal of Network Theory in Finance. I hope to see many of you there.

Our second issue features three very different approaches that use network theory to understand economic and financial phenomena. The first paper, "Transmission of shocks in the integrated accounting framework" by Olli Castrén and Ilja Kristian Kavonius, develops a framework based on integrated national accounting data that aims to capture linkages between different sectors of the economy. The authors first develop a methodology to derive "who-to-whom" networks of quarterly financial and nonfinancial accounts, and they then develop a static model that can be used to carry out stress tests both at the sectoral level and for risk transmission analysis of alternative policy choices.

The issue's second paper, "The global network of payment flows" by Samantha Cook and Kimmo Soramäki, also considers a network of cross-border SWIFT message flows where nodes are the countries in which the sending and receiving banks are domiciled. The authors analyze how the payment flows reflect or predict various aspects of the real economies. It takes a broad brush approach and maps the network and its evolution from many angles, answering questions such as:

          - Which are the main global payment blocks?
          - Which are the important countries and payment corridors?
          - What was the impact of the financial crisis?

The final paper in the issue, "Granger-causal nonlinear financial networks" by Paweł Fiedor, aims to quantify cascades of price movements in financial markets. It considers nonlinear lead-lag effects with stocks in the S&P 100 as nodes, and it also looks at directed links between the stocks identified through Granger causality. The author finds important causal links between the stocks, even if the effects often disappear within an hour. The results and methodology of the paper can be used to build better risk management techniques or new trading algorithms.

Kimmo Soramäki
Financial Network Analytics Ltd.