۱٫ Introduction

۲٫ Previous studies

۳٫ Measurement of default contagion

۴٫ Networks analysis of default contagion

۵٫ Conclusion

Acknowledgement

References

In our increasingly connected business environment, an enterprise’s financial downturn can spread to its economic associates, a phenomenon defined as default contagion. In academic research, the default contagion is usually measured by the default dependence degree. This paper utilizes the Copula metric method to capture the default dependence degree, and studies the default dependence degree of listed companies in China through quantitative analysis. Related properties of default dependence of the listed companies are then explored through a simulation method. Results find that the default dependence degrees of listed companies in China present the remarkable characteristics of a small-world network, which are a high cluster and a short path. This indicates that once the core company defaults, the adverse effect will quickly spread to other companies through the network diffusion effect of the financial market. Hence, this study can provide some theoretical basis for the design of a mechanism to prevent and control large-scale default events.

Introduction

Default contagion is the impact that the default of one debtor has on other creditors. With the rapid development of the financial industry, enterprises are becoming closely linked in unprecedented ways. Due to the increasing correlation between modern enterprises, an enterprise’s financial downturn can spread to its economic related partners. Once a firm defaults, the financial influence can spread rapidly to other firms, not only through the financial network, but more often through the amplification effect produced by the clustered network. The subprime mortgage crisis in 2008 was the result of the default contagion, increasing scholarly attention to the default problem.