Financial Contagion based on Overlapping Portfolio in TEPIX Industrial Groups

The development of financial instruments and institutions, as well as increased convergence and innovation in financial markets, is increased the concerns about the overall stability of the financial system that allows concepts, like financial contagion, to become increasingly important. Financial contagion emanates through a variety of channels, including the risk of maintaining shared assets, in other words, an overlapping portfolio risk. The financial contagion and the risk of overlapping portfolios arise from the interconnected relationships and interconnections between investment institutions and markets and can threaten the stability of the entire system. Therefore, the main goal of this paper is to help investors, analysts, and other financial market participants and also regulators to prevent financial crises from that risk and providing a model for measuring financial contagion in the Tehran Stock Exchange using the risk of overlapping portfolios in different industries. To investigate these goals, the design process of the model and the analysis of this research are considered in three stages based on the data mining method. In the first part of the study, industrial groups were categorized into four clusters based on their impressionability and their impact on other groups, based on the variables and portfolios of financial institutions that are active in Iran’s capital market in the form of the matrix of transmitter and receiver of the contagion. The comparison of the probability of contagion and the probability of the extent of contagion of two periods of time at the end of 1394 and 1395 indicates that the numbers presented in the industrial groups, transmitter or receiver of the contagion in both years, are pretty much similar, which proves the reliability of the model. Results also refer to the fact that the capital market of Iran possesses a low probability for financial contagion based on overlapping portfolio risk.