Dynamic correlation analysis of financial contagion: Evidence from Asian markets

Do Changes on Sovereign Credit Rating Have Impacts on the Interdependence of Stock Markets in the Asian-Pacific Emerging Markets?

“…This model is formulated according to Christopher et al [10] and we also include US 1 t r − , the lagged daily returns of S&P index in themean Equation (1), (2) as Chiang et al [8] did in their analysis. With an OLS estimation of Equations (1) emerging stock markets and regional markets is listed in Table 3, and Figure 2 displays the trend of time-varying conditional correlations in our sample period.…”

“…In order to answer this question, we formulate indicate variables proposed by Chiang et al [8] to measure …”

“…Given the frequent changes of ratings during financial crisis, studies in effects of ratings events on financial crisis have also been hot debated. For instance, Chiang et al [8] find out that rating events during Asian financial crisis have caused structural impact on dynamic co-movement among Asian stock markets.…”

“…However, neither of two considers the time-varying features of correlation. Taking advantage of Dynamic Conditional Correlation Model proposed by Engle [9], Chiang et al [8] calculate time-varying conditional correlations of nine Asian daily stock-return data from 1990 to 2003, and discovered that international sovereign credit agencies play a significant role in shaping structure of dynamic correlations in the Asian markets. By applying dynamic correlation model to stock and bond markets in developing countries with the respective regional markets in Asian-Pacific, European, Latin America and Middle East and Africa, Christopher et al [10] discover that changes on ratings lead to asymmetric effects on correlations in stock and bond markets and discern a significant longterm effect but less significant short-run effect.…”

“…This paper applies the analysis of cross-country correlation matrices of returns in negative ratings events days and none-event days, but furtherly includes studies of positive ratings event days so as to reveal an asymmetric effect of ratings changes on return correlations. Secondly, we also introduce dynamic conditional correlations and apply an error correction model as Chiang et al [8] and Christopher [10] Table 1, and plot of returns is presented in Figure 1, all of which and following empirical statistics and figures are obtained by MATLAB programming.…”