The Role of Economic Contagion in the Inward Investment of Emerging Economies: The Dynamic Conditional Copula Approach

Abstract

Contagion has been one of the most widely studied and challenging problems in recent economic research. This paper aims at capturing the main impact of contagion risk of the U.S. on foreign direct investment inflows in 18 emerging countries. To quantify the degree of contagion, the time-varying tail dependence copula is employed. Then, the Granger causality test and time series regression analysis are used to investigate the temporal and contemporaneous effects of contagion risk on investment inflows, respectively. Overall, the results confirm the time-varying contagion effects of the U.S. economy on 18 emerging economies. The size of contagion effects gradually increases for all countries, except Thailand, the Philippines, Argentina, and Chile. Furthermore, the results of the Granger causality test and regression reveal that temporal and contemporaneous effects of contagion risk on investment inflows exist in 8 out of 18 countries.

Revisiting the Copula-Based Trading Method Using the Laplace Marginal Distribution Function

“…These functions are employed to illustrate the dependency of several given stochastic variables. In fact, they have broadly been employed in multivariate statistics and quantitative finance ranging from trading in portfolios with several stocks to risk management [4][5][6].…”