Volatility spillovers and contagion: an empirical analysis of structural changes in emerging market volatility
AbstractThis paper aims to test the international transmission of stock market volatility and the risk of contagion among a sample of emerging and developed markets through a methodology rarely used in this context. This methodology, developed by Bai and Perron (1998, 2003), is based on the determination of structural breakpoints. Our empirical strategy consists in identifying similarities in the dates of structural breaks and in comparing them with the occurrence dates of financial crises in order to test respectively the international transmission of volatility and the risk of contagion. Empirical results lead to very interesting conclusions. First, we find that the transmission of volatility is effective between the emerging markets and between them and the developed ones. Second, we show that the geographical proximity has a crucial effect in the transmission of volatility. Finally, a comparison between the occurrence dates of financial crises and the different structural breakpoint dates allows us to notice that there is an important analogy between them. This proves that the financial shocks are transmitted from one market to another during the periods of crises.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by AccessEcon in its journal Economics Bulletin.
Volume (Year): 33 (2013)
Issue (Month): 1 ()
Contact details of provider:
G01; G15; C58;
Find related papers by JEL classification:
- F3 - International Economics - - International Finance
- G1 - Financial Economics - - General Financial Markets
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Perron, P. & Bai, J., 1995.
"Estimating and Testing Linear Models with Multiple Structural Changes,"
Cahiers de recherche
9552, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
- Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Universite de Montreal, Departement de sciences economiques.
- King, Mervyn A & Wadhwani, Sushil, 1990.
"Transmission of Volatility between Stock Markets,"
Review of Financial Studies,
Society for Financial Studies, vol. 3(1), pages 5-33.
- Bertero, Elisabetta & Mayer, Colin, 1989.
"Structure and Performance: Global Interdependence of Stock Markets Around the Crash of October 1987,"
CEPR Discussion Papers
307, C.E.P.R. Discussion Papers.
- Bertero, Elisabetta & Mayer, Colin, 1990. "Structure and performance: Global interdependence of stock markets around the crash of October 1987," European Economic Review, Elsevier, vol. 34(6), pages 1155-1180, September.
- Kristin Forbes & Roberto Rigobon, 1999.
"No Contagion, Only Interdependence: Measuring Stock Market Co-movements,"
NBER Working Papers
7267, National Bureau of Economic Research, Inc.
- Kristin J. Forbes & Roberto Rigobon, 2002. "No Contagion, Only Interdependence: Measuring Stock Market Comovements," Journal of Finance, American Finance Association, vol. 57(5), pages 2223-2261, October.
- Phylaktis, Kate & Ravazzolo, Fabiola, 2002. "Measuring financial and economic integration with equity prices in emerging markets," Journal of International Money and Finance, Elsevier, vol. 21(6), pages 879-903, November.
- Geert Bekaert & Campbell R. Harvey & Angela Ng, 2005.
"Market Integration and Contagion,"
The Journal of Business,
University of Chicago Press, vol. 78(1), pages 39-70, January.
- Hamao, Yasushi & Masulis, Ronald W & Ng, Victor, 1990. "Correlations in Price Changes and Volatility across International Stock Markets," Review of Financial Studies, Society for Financial Studies, vol. 3(2), pages 281-307.
- Kristin Forbes & Roberto Rigobon, 2000.
"Contagion in Latin America: Definitions, Measurement, and Policy Implications,"
NBER Working Papers
7885, National Bureau of Economic Research, Inc.
- Roberto Rigobón & Kristin Forbes, 2001. "Contagion in Latin America: Definitions, Measurement, and Policy Implications," Journal of LACEA Economia, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
- Kearney, Colm, 2000. "The determination and international transmission of stock market volatility," Global Finance Journal, Elsevier, vol. 11(1-2), pages 31-52.
- Sebastian Edwards & Raul Susmel, 2003. "Interest-Rate Volatility in Emerging Markets," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 328-348, May.
- Nikkinen, Jussi & Omran, Mohammad M. & Sahlstrom, Petri & Aijo, Janne, 2008. "Stock returns and volatility following the September 11 attacks: Evidence from 53 equity markets," International Review of Financial Analysis, Elsevier, vol. 17(1), pages 27-46.
- Eichengreen, Barry & Arteta, Carlos, 2000.
"Banking Crises in Emerging Markets: Presumptions and Evidence,"
Center for International and Development Economics Research, Working Paper Series
qt3pk9t1h2, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
- Barry Eichengreen & Carlos Arteta, 2001. "Banking Crises in Emerging Markets: Presumptions and Evidence," Macroeconomics 0012012, EconWPA.
- Barry Eichengreen and Carlos Arteta., 2000. "Banking Crises in Emerging Markets: Presumptions and Evidence," Center for International and Development Economics Research (CIDER) Working Papers C00-115, University of California at Berkeley.
- Maria Kasch-Haroutounian & Simon Price, 2001. "Volatility in the transition markets of Central Europe," Applied Financial Economics, Taylor & Francis Journals, vol. 11(1), pages 93-105.
- Kamel Malik Bensafta & Semedo Gervasio*, 2011. "Chocs, chocs de volatilité et contagion entre les marchés boursiers. Application d'un modèle icss-mgarch," Revue économique, Presses de Sciences-Po, vol. 62(2), pages 277-311.
- Romain Ranciere & Aaron Tornell & Frank Westermann, 2006.
"Decomposing the Effects of Financial Liberalization: Crises vs. Growth,"
NBER Working Papers
12806, National Bureau of Economic Research, Inc.
- Ranciere, Romain & Tornell, Aaron & Westermann, Frank, 2006. "Decomposing the effects of financial liberalization: Crises vs. growth," Journal of Banking & Finance, Elsevier, vol. 30(12), pages 3331-3348, December.
- Romain Ranciere & Aaron Tornell & Frank Westermann, 2006. "Decomposing the Effects of Financial Liberalization: Crises vs. Growth," Working Papers 74, Institute of Empirical Economic Research.
- Caporale, Guglielmo Maria & Pittis, Nikitas & Spagnolo, Nicola, 2002. "Testing for Causality-in-Variance: An Application to the East Asian Markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 7(3), pages 235-45, July.
- Aymen Ben Rejeb & Ousama Ben Salha, 2013. "Financial crises and emerging stock markets volatility: do internal factors matter?," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 6(1), pages 146-165, March.
- Warren Bailey & Haitao Li & Connie X. Mao & Rui Zhong, 2003. "Regulation Fair Disclosure and Earnings Information: Market, Analyst, and Corporate Responses," Journal of Finance, American Finance Association, vol. 58(6), pages 2487-2514, December.
- BAI, Jushan & PERRON, Pierre, 1998.
"Computation and Analysis of Multiple Structural-Change Models,"
Cahiers de recherche
9807, Universite de Montreal, Departement de sciences economiques.
- Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
- Masih, Abul M. M. & Masih, Rumi, 1999. "Are Asian stock market fluctuations due mainly to intra-regional contagion effects? Evidence based on Asian emerging stock markets," Pacific-Basin Finance Journal, Elsevier, vol. 7(3-4), pages 251-282, August.
- Holden, Ken & Thompson, John & Ruangrit, Yuphin, 2005. "The Asian crisis and calendar effects on stock returns in Thailand," European Journal of Operational Research, Elsevier, vol. 163(1), pages 242-252, May.
- Ramirez, Manuel & Martínez, Constanza, 2009.
"International propagation of shocks: an evaluation of contagion effects for some Latin American countries,"
DOCUMENTOS DE TRABAJO
005789, UNIVERSIDAD DEL ROSARIO.
- Constanza Martinez & Manuel Ramirez, 2011. "International propagation of shocks: an evaluation of contagion effects for some Latin American countries," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 4(2), pages 213-233, December.
- Sebastian Edwards & Raul Susmel, 2001.
"Volatility Dependence and Contagion in Emerging Equity Markets,"
NBER Working Papers
8506, National Bureau of Economic Research, Inc.
- Edwards, Sebastian & Susmel, Raul, 2001. "Volatility dependence and contagion in emerging equity markets," Journal of Development Economics, Elsevier, vol. 66(2), pages 505-532, December.
- Ali F. Darrat & Omar M. Benkato, 2003. "Interdependence and Volatility Spillovers Under Market Liberalization: The Case of Istanbul Stock Exchange," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30, pages 1089-1114.
- Masson, Paul, 1999. "Contagion:: macroeconomic models with multiple equilibria," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 587-602, August.
- Leachman, Lori L. & Francis, Bill, 1996. "Equity market return volatility: Dynamics and transmission among the G-7 countries," Global Finance Journal, Elsevier, vol. 7(1), pages 27-52.
- Xiaoqing Eleanor Xu & Hung-Gay Fung, 2002. "Information Flows across Markets: Evidence from China-Backed Stocks Dual-Listed in Hong Kong and New York," The Financial Review, Eastern Finance Association, vol. 37(4), pages 563-588, November.
- Charles, Amelie & Darne, Olivier, 2006. "Large shocks and the September 11th terrorist attacks on international stock markets," Economic Modelling, Elsevier, vol. 23(4), pages 683-698, July.
- Aggarwal, Reena & Inclan, Carla & Leal, Ricardo, 1999. "Volatility in Emerging Stock Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 34(01), pages 33-55, March.
- Karolyi, G Andrew, 1995. "A Multivariate GARCH Model of International Transmissions of Stock Returns and Volatility: The Case of the United States and Canada," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 11-25, January.
- Ben Salha Ousama & Bouazizi Tarek & Aloui Chaker, 2012. "Financial Liberalization, Banking Crises and Economic Growth: The Case of South Mediterranean Countries," Global Economy Journal, De Gruyter, vol. 12(3), pages 1-22, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (John P. Conley).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.