Financial Econometrics: Network Analysis

Financial Econometrics
Student’s Name
Institutional Affiliation
Financial Econometrics
Network analysis is one of the topics that has numerous applications in finance and macroeconomics. The analysis entails a representation of interconnections in form of graphs. While the vertices of a graph represent variables in a panel, an edge between vertices is an indicator of the dependence between variables. According to Summer (2013), any dependence can drive from either common exposures or direct exposures. Therefore, it is apparent that network analysis entails more than just graphs as common applications and techniques in financial operations. Besides, a network analysis conceptualizes graph as a set of vertices, points, units, and nodes, that involves a set of lines and the social relations between them.
The advances in empirical finance have influenced higher interest in the various applications of network models. Therefore, network analysis is relevant in expediting analysis of risk propagation channels, spillover effects, and risk propagation channels. In the current era of tec...