Testing for contagion: a conditional correlation analysis

Caporale, Guglielmo Maria; Cipollini, Andrea; Spagnolo, Nicola

doi:10.1016/j.jempfin.2004.02.005

Cited by 207 publications

(131 citation statements)

References 25 publications

(43 reference statements)

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“…Moreover, we have improved upon their study by taking the approach advocated by Caporale et al (2005), which relies on more plausible (over)identifying restrictions by carrying out a full sample test for the stability of a structural form system. The estimation results show that the impact of the East Asian crisis on developed financial markets was small.…”

Section: Discussionmentioning

confidence: 99%

“…10 In line with Caporale et al (2005), given that under the null of parameter stability (e.g., interdependence), the distribution of both the t-ratios and Wald statistics are unknown, we obtain the relevant critical values through bootstrapping. In particular, first we estimate, under the null of parameter stability, the system given by (1) and by (5) imposing zero volatility spillovers, that is: …”

Section: Inference Using Bootstrapped Critical Valuesmentioning

confidence: 98%

“…1 Following King and Wadhwani (1990), we define contagion as a significant increase in cross-market linkages after a shock to one country, and also correct for heteroscedasticity and endogeneity bias as suggested by Forbes and Rigobon (2002), and Rigobon (2004), respectively. 2 Furthermore, in order to determine endogenously the breakpoints denoting the contagion period, we employ the sequential dummy test introduced by Caporale et al (2005) that relies on more plausible (over) identifying restrictions compared to earlier studies. Finally, as in the latter study, we compute the appropriate critical values for this test by means of bootstrap.…”

Section: Introductionmentioning

confidence: 99%

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Testing for financial contagion between developed and emerging markets during the 1997 East Asian crisis

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Section: Discussionmentioning

confidence: 99%

Section: Inference Using Bootstrapped Critical Valuesmentioning

confidence: 98%

Section: Introductionmentioning

confidence: 99%

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Testing for financial contagion between developed and emerging markets during the 1997 East Asian crisis

et al. 2005

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“…An additional advantage is that we do not have to split the sample in non-crisis and crisis periods as in most static models of contagion. Nor do we have to impose restrictions on the conditional variance system-as in Caporale et al (2005)-in order to identify the model. In addition, many straightforward multivariate extensions of the univariate GARCH model are often not parsimonious since the number of parameters to be estimated is increasing rapidly as the number of assets included grows.…”

Section: Correlation Dynamics In East Asian Financial Markets 1 Intromentioning

confidence: 99%

Correlation Dynamics in East Asian Financial Markets

Kuper

Lestano

2015

Emerging Markets Finance and Trade

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This paper examines the dynamic relationship between stock returns and exchange rate changes using daily data from January 3, 1994-September 27, 2013 for six East Asian countries: Indonesia, Malaysia, the Philippines, Singapore, South Korea and Thailand. We estimate conditional correlations using the multivariate GARCH-DCC model in order to disclose the relationship between stock markets and foreign exchange markets. This is important for understanding financial stability. The estimation results reveal time varying correlations in the pre and post Asian crisis and the Global Financial Crisis periods for all countries. The correlations are stronger when the crisis intensifies. The degree of interdependence between both markets reflects a mutually markets response to shocks and changes in policy.

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“…Indeed, increased comovement between asset returns under economic or nancial distress may be driven by changes in the structural transmission of shocks across countries, or reect a change in the size of underlying economic disturbances. The analysis of this scenario has been the subject of an extensive debate, commonly referred to as the contagion or shift-contagion literature (Forbes and Rigobon, 2002;Corsetti et al, 2005;Caporale et al, 2005;Gravelle et al, 2006).…”

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International equity markets interdependence: bigger shocks or contagion in the 21st century?

Bua

Trecroci

2018

Rev World Econ

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This paper investigates the nature of shocks across international equity markets and evaluates the shifts in their comovements at a business-cycle frequency. Using an identication through heteroskedasticity methodology, we compute the impact coecients on the common and country-specic shocks to stock returns. We then establish three key results regarding the recent comovement amongst returns. First, across all indices, persistent high-volatility spells always coincide with macroeconomic slowdowns. This conrms that market volatility increases as a result of shifts in the perception of macroeconomic risk. Second, there is a rise in the observed responses of international stock returns to common shocks during turbulent periods; such increase is largely attributable to bigger shocks (heteroskedasticity of fundamentals) rather than to breaks in the transmission mechanism or increased structural interdependence between markets. This holds for the Great Financial Crisis too. Third, since the late 1990s returns have been hit more often by high-volatility common shocks, likely because of larger and more persistent macroeconomic disturbances.

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Testing for contagion: a conditional correlation analysis

Cited by 207 publications

References 25 publications

Testing for financial contagion between developed and emerging markets during the 1997 East Asian crisis

Testing for financial contagion between developed and emerging markets during the 1997 East Asian crisis

Correlation Dynamics in East Asian Financial Markets

International equity markets interdependence: bigger shocks or contagion in the 21st century?

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