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Systemic Risk Radar: A Multi-Layer Graph Framework for Early Market Crash Warning

Risk Management 2025-12-22 v1 Artificial Intelligence Machine Learning

Abstract

Financial crises emerge when structural vulnerabilities accumulate across sectors, markets, and investor behavior. Predicting these systemic transitions is challenging because they arise from evolving interactions between market participants, not isolated price movements alone. We present Systemic Risk Radar (SRR), a framework that models financial markets as multi-layer graphs to detect early signs of systemic fragility and crash-regime transitions. We evaluate SRR across three major crises: the Dot-com crash, the Global Financial Crisis, and the COVID-19 shock. Our experiments compare snapshot GNNs, a simplified temporal GNN prototype, and standard baselines (logistic regression and Random Forest). Results show that structural network information provides useful early-warning signals compared to feature-based models alone. This correlation-based instantiation of SRR demonstrates that graph-derived features capture meaningful changes in market structure during stress events. The findings motivate extending SRR with additional graph layers (sector/factor exposure, sentiment) and more expressive temporal architectures (LSTM/GRU or Transformer encoders) to better handle diverse crisis types.

Keywords

Cite

@article{arxiv.2512.17185,
  title  = {Systemic Risk Radar: A Multi-Layer Graph Framework for Early Market Crash Warning},
  author = {Sandeep Neela},
  journal= {arXiv preprint arXiv:2512.17185},
  year   = {2025}
}

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Preprint

R2 v1 2026-07-01T08:32:45.615Z