LIVE · REPRODUCIBLEarXiv · econ.EM
Scale-Ordered Contagion: A Spectral Theory of Heterogeneous Information Adaptation in Financial Networks
arXiv:2606.04113 · arXiv preprint · 2026-06
Develops the Scale-Ordered Contagion Hypothesis (SOCH): the wavelet scale at which directed transfer entropy peaks between two markets is set by the slower market's adaptation rate. Building on a heterogeneous-agents reading in which advanced economies adapt quickly and emerging economies slowly, both the originating and the receiving market filter a shock, and the slower of the two sets the horizon over which contagion is felt most strongly. This yields three falsifiable predictions, jointly the SOCH: horizon ordering, cross-directional shape symmetry, and directional magnitude asymmetry. The theory is turned into an estimator that recovers each market's speed of adaptation, and taken to G20 equity markets over 2006 to 2026.
Key results
- USA to India tail spillover across wavelet scales d1 to d4: 0.0155 / 0.0425 / 0.0491 / 0.0494 (published profile).
- The live engine reproduces the per-scale d1 to d4 profile to a maximum difference of 0.0000.
- India and China identify cleanly as the slowest adapters; the fastest markets cannot be separated from daily data.
USA → India: tail spillover by time-scale static regeneration
Directed wavelet-quantile transfer entropy at the 5% tail, four scales d1 to d4. Values are the published figure and the engine regeneration; see reproduce.html for the live run.
Published: Bhandari & Parida (2026)
0.0426
5-scale agg (paper)
d4
peak scale
Engine regeneration
0.0391
4-scale agg
d4
peak scale
✓ The engine reproduces the published per-scale d1 to d4 shape, maximum difference 0.0000.
SOCH-C directional level asymmetry: p = 0.105, not significant. Reported as measured, never hidden.
The paper reports a five-scale profile (0.0155, 0.0425, 0.0491, 0.0494, 0.0567), aggregate 0.0426. The engine decomposes to four scales d1 to d4, aggregate 0.0391; the whole difference is the d5 (32 to 64 day) band. The per-scale d1 to d4 values match to a maximum difference of 0.0000.