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Financial stress in an adaptive system: From empirical validity to theoretical foundations

Oet, Mikhail V
http://rave.ohiolink.edu/etdc/view?acc_num=case1459347548

Abstract Details

2016, Doctor of Philosophy, Case Western Reserve University, Management.
A review of financial system stress measures reveals not only the absence of theory on financial stress, but also the absence of search for theory. To remedy this gap, this study conducts a rigorous investigation of the empirical validity and dynamic properties of financial stress measurement in the context of financial system complexity. We provide and validate four contributions to literature. First, we establish the relevance and comparative quality of macro-level stress measurement for the financial system relative to alternative measures of system conditions. Second, we establish theoretical foundations for measuring financial stress across multiple units of analysis. This measure builds on the understanding of stress origins and drivers and incorporates price, quantity, and behavioral variables to explain the pattern of apparently irrational choices of financial agents. At the macro-level, stress is supported empirically by hypotheses of association between behavioral aspects of heterogeneous financial agents and overall financial system stress. At the micro-level, we apply abductive inference to the empirical results to propose a new theoretical stress measure for heterogeneous agents and instruments. Defining financial stress theoretically allows continual measurement of financial stress at the level of the various heterogeneous partitions of the financial system (e.g. agents and instruments) as these partitions evolve through structural changes and financial innovations. Third, we build a theory of stress transmission across micro-level of sectoral agents to the macro-level of the financial system. This theory describes a process of stress transmission across financial intermediaries and the process by which its agent stress escalates to the financial system. Fourth, we examine the process by which unusual conditions in the financial markets manifest as critical states of financial system stress.
Kalle Lyytinen (Committee Chair)
Lucia Alessi (Committee Member)
Agostino Capponi (Committee Member)
Myong-Hun Chang (Committee Member)
Corinne Coen (Committee Member)
294 p.
Banking; Economics; Finance; Management
financial stress; heterogeneous agents; empirical validity; factor analysis; dynamic factors, stochastic analysis; content analysis

Recommended Citations

Citations

  • Oet, M. V. (2016). Financial stress in an adaptive system: From empirical validity to theoretical foundations [Doctoral dissertation, Case Western Reserve University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=case1459347548

    APA Style (7th edition)

  • Oet, Mikhail. Financial stress in an adaptive system: From empirical validity to theoretical foundations. 2016. Case Western Reserve University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=case1459347548.

    MLA Style (8th edition)

  • Oet, Mikhail. "Financial stress in an adaptive system: From empirical validity to theoretical foundations." Doctoral dissertation, Case Western Reserve University, 2016. http://rave.ohiolink.edu/etdc/view?acc_num=case1459347548

    Chicago Manual of Style (17th edition)

case1459347548
1,174
© 2016, all rights reserved.
This open access ETD is published by Case Western Reserve University School of Graduate Studies and OhioLINK.