It can be rationalized intuitively that the major financial institutions of the U.S. are highly connected to the markets as a whole. Large financial institutions serve a vast & global array of both small and large businesses with products such as commercial loans, investing vehicles, and insurance products, to support the daily and long-term operations of nearly every business. It is because of their pivotal role as the gatekeeper to key capital resources that they are so connected. These resources are necessary for financing businesses as they cover their start-up costs or fund expansions while still safely covering day-to-day operational costs of the core business.
The idea that these firms, in a macro-view of the global equities marketplace, are playing the role of the pivotal nodes in this graph of the marketplace that really jumped out at me. Then I began thinking of these well-connected financial institutions’ actions as analogous to the idea of gatekeepers, in that the main means of the lesser-connected nodes in our graph (the non-financial service businesses) to gain access to key resources is via financial service gatekeepers.
What if a deeper understanding of network theory could possibly provide the groundwork for a rich new form of performance analysis & forecasting, one that could potentially bridge the gaps and reveal the unknowns that traditional means haven’t successfully explained?
I think with the proper implementation of socio-economic theory and techniques used in network theory to explain their structure and behavior, a economist might be able to map a firms individual network in relation to the macro perspective of it’s industry and larger aggregate and systemic market relationships, that economist could provide a much more vivid image of how the future of that firm looks given a set of assumptions.
I would enjoy hearing if any thoughts!!