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Entropy 2013, 15(12), 5549-5564; doi:10.3390/e15125549
Article

Risk Contagion in Chinese Banking Industry: A Transfer Entropy-Based Analysis

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Received: 7 September 2013 / Revised: 19 October 2013 / Accepted: 9 December 2013 / Published: 16 December 2013
(This article belongs to the Special Issue Transfer Entropy)
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Abstract

What is the impact of a bank failure on the whole banking industry? To resolve this issue, the paper develops a transfer entropy-based method to determine the interbank exposure matrix between banks. This method constructs the interbank market structure by calculating the transfer entropy matrix using bank stock price sequences. This paper also evaluates the stability of Chinese banking system by simulating the risk contagion process. This paper contributes to the literature on interbank contagion mainly in two ways: it establishes a convincing connection between interbank market and transfer entropy, and exploits the market information (stock price) rather than presumptions to determine the interbank exposure matrix. Second, the empirical analysis provides an in depth understanding of the stability of the current Chinese banking system.
Keywords: interbank exposure matrix; risk contagion; transfer entropy interbank exposure matrix; risk contagion; transfer entropy
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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Li, J.; Liang, C.; Zhu, X.; Sun, X.; Wu, D. Risk Contagion in Chinese Banking Industry: A Transfer Entropy-Based Analysis. Entropy 2013, 15, 5549-5564.

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