Financial contagion: A local correlation analysis

Modeling investment guarantees in Japan: A risk-neutral GARCH approach

“…This index is commonly used by researchers for studies on the Japanese equity market (for examples, see Dao & Wolters, 2008;Inci, Li & McCarthy, 2011;Moshirian, Ng, & Wu, 2010;Mukherjee & Mishra, 2010). We consider daily log total returns on the Nikkei 225 index from 11 March 2002 to 30 September 2008.…”

Local Gaussian correlation: A new measure of dependence

“…In finance and econometrics there have been several attempts to handle variation in local dependence in, say, portfolio modelling (Silvapulle and Granger, 2001), measuring contagion (Rodrigues, 2007;Inci et al, 2011) and description of tail dependence (Campbell et al, 2008). Perhaps the most used solution to these problems is to employ the concept of conditional correlation; see, for example, Forbes and Rigobon (2002), and Longin and Solnik (2001) and Hong et al (2007).…”

“…This leads to asymmetry in their local correlation (which they can heuristically correct for). An application to finance is given in Inci et al (2011). In our approach we treat (X, Y ), or rather (X 1 , X 2 ), on exactly the same basis.…”

The end of diversification

“…Prior to 2007, however, there were some studies which considered contagion to be unproven or specific to a few markets or situations (Forbes and Rigobon 2002). But this qualification seems to largely disappear after the 2007 and 2008 periods; a number of papers find significant contagion in the crisis and post-crisis regimes (Dungey and Martin 2007, Phylaktis and Xia 2009, Ahlgren and Antell 2010, Baele and Inghelbrecht 2010, Dungey et al 2010, Longstaff 2010, Chan et al 2011, Inci et al 2011, Page and Taborsky 2011. Contagion seems to be here to stay, and it is not a guest that anybody wants to have.…”