Temporal Event-Causality Graphs for Financial Contagion: Learning Shock Propagation Across Event Types from Financial News

Financial contagion—the propagation of shocks across markets, sectors, and time—remains one of the central questions in empirical finance, and yet most computational approaches model it at the wrong granularity. Existing work captures contagion at the asset level by measuring realised return or volatility comovements between specific securities, which conflates a structural pattern with its surface manifestation. We argue that the genuine causal regularity in contagion is between event types (rate decisions, default announcements, regulatory actions) rather than between individual assets. This paper introduces TECG, a framework that learns time-stamped causal-temporal association edges—predictive dependencies rather than identified causal effects—between abstract financial event types from news text and uses them to forecast multi-step contagion cascades. Methodologically, TECG can be read as a neural impulse response function (IRF) for event sequences: where the canonical structural-VAR IRF traces the dynamic response of one continuous variable to a shock in another, TECG traces the conditional intensity with which one event type fires after a shock to another event type, at a learned and possibly multi-modal lag. The framework couples LLM-based event extraction with a multivariate neural Hawkes process whose intensity functions are parameterised by a temporal graph neural network. The resulting graph has interpretable, time-stamped edges of the form “event-type A triggers event-type B with lag distribution L and conditional intensity κ.” We evaluated TECG on an aggregated corpus of approximately 482,000 financial news items spanning 2007–2023 and report three findings. First, the learned edges recover associations consistent with known causal relationships in finance—central-bank announcements preceding sector-level earnings revisions, default events at one institution preceding due-diligence events at competitors—without supervision on these relationships. Second, edges learned from data up to 2018 transfer to held-out cascades from 2020 (COVID equity crash) and 2023 (US regional banking stress) with substantially better fidelity than baselines that ignore temporal structure or operate at the asset level. Third, the framework supports generalised impulse response analysis: given a hypothetical seed event, it produces a distribution over downstream event chains that an analyst can interrogate, time-stamp, and entity-resolve. We are explicit that the empirical validation is observational and that the causal interpretation rests on assumptions we discuss at length. All headline comparisons are supported by paired-bootstrap significance tests; the extraction front end is independently evaluated on a manually annotated benchmark, with an explicit error-propagation analysis; and additional comparisons against recent temporal point-process and temporal-graph baselines are reported. The framework’s principal limitation is that it does not separately identify endogenous fire-sale or leverage-spiral dynamics; we point to where these gaps could be closed.