An Innovative Approach to Analyze Financial Contagion Using Causality-Based Complex Network and Value at Risk
Round 1
Reviewer 1 Report
The authors state that they will combine Granger causality networks and impulse response analysis to reveal the directed influences and risk sensitivities of key stock indices. Their method is claimed to be more straightforward than susceptible-infectious-recovered models but equally insightful.
+The introduction is brief and could provide more details on the specific approaches used and what makes them an innovative application or combination
+Improve table 3
Author Response
- The authors state that they will combine Granger causality networks and impulse response analysis to reveal the directed influences and risk sensitivities of key stock indices. Their method is claimed to be more straightforward than susceptible-infectious-recovered models but equally insightful.
Answer: Thank you very much for your comments.
- +The introduction is brief and could provide more details on the specific approaches used and what makes them an innovative application or combination
Answer: I have revised my introduction part. Please see the updated version.
- +Improve table 3
Answer: I have improved table 3. Please see the updated version.
Reviewer 2 Report
This paper studies financial contagion and proposes a causal network based methodology to analyze the disturbances. Granger causality network is used on Value at Risk (VaR) and expected shortfall.
30 commonly known stock indices are selected as a subset for the use case. Granger causality test is performed after the risk indicators that is VaR and ES are calculated. Here, given the nature of expected shortfall being considered as the conditional expectation of loss, it would be beneficial to also use Peter Clark causal method, this can also serve as a validation in the future.
Author Response
Answer: Thank you for your comments. Peter Clark causal method is an inspiring method. In the future research, I can compare Granger causal method with Peter Clark causal method, and see if I can discover more interesting results.
Reviewer 3 Report
In this paper, authors propose to analyse the possible existence of contagion, through a complex network, combining different approaches. This is an interesting approach, which I believe that could be improved with the following issues:
1) Please, define BSESN in the abstract
2) The literature review, which authors include in the introduction, should be deepened, for example, using some survey about the topic.
3) I believe that the methodology chose is adequate. Although, authors should discuss other possible approaches, already present in the literature, which could be used as an alternative (the objective is not to use them, just discuss potential advantages and/or disadvantages)
4) How did the authors chose the "30 major stock indices"? Which is the used criteria.
5) Please, correct the formula of the log return. It should be PT/Pt-1 (Pt+1 is a future price)
6) Figure 3 is difficult to be read. Use abbreviations of the countries instead of the numbers (which are not all visible). Also correct other figures, once most of them have low resolution.
7) The guidelines about the references are not followed
Author Response
1. Please, define BSESN in the abstract
Answer: I added BSESN’s definition in the abstract. Please see the updated document.
2. The literature review, which authors include in the introduction, should be deepened, for example, using some survey about the topic.
Answer: I added more literature/paper in the literature review section. They are more relevant to the topic of this paper.
3. I believe that the methodology chose is adequate. Although, authors should discuss other possible approaches, already present in the literature, which could be used as an alternative (the objective is not to use them, just discuss potential advantages and/or disadvantages)
Answer: In the literature review section I added 5 more papers and talked about their approaches. They can be used as alternative methods. In the future research, I could compare their results and add more depth to my research.
4. How did the authors chose the "30 major stock indices"? Which is the used criteria.
Answer: I chose representative countries from America, Europe, Asia, Middle East and Africa. In regards to each country, I did research to figure out the most representative/influential stock market in that country. When a country has more than one important stock market, I made an arbitrary selection. In the end, these 30 stock markets are not necessarily the most influential ones by trading volume or other criteria, but they are definitely among the world renowned stock indices.
5. Please, correct the formula of the log return. It should be PT/Pt-1 (Pt+1 is a future price)
Answer: I corrected the formula.
6. Figure 3 is difficult to be read. Use abbreviations of the countries instead of the numbers (which are not all visible). Also correct other figures, once most of them have low resolution.
Answer: I improved my figures. In regards to figure 3, if I write down country names the figure will be hard to read. I deleted that figure. Please see Table S1 for descriptive statistics. Table S1 is much clearer than the original figure3.
7. The guidelines about the references are not followed
Answer: I revised my references. Please see the updated document.
