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Evidence of interdependence and contagion using a frequency domain framework

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  • Bodart, Vincent
  • Candelon, Bertrand

Abstract

This paper proposes a new measure of contagion, based on the frequency analysis of causality developed recently by Breitung and Candelon [Breitung, J., Candelon, B. 2006. Testing for short and long-run causality: a frequency domain approach, Journal of Econometrics, 12, 363-378.]. This approach handles several of the statistical problems identified in the literature. It also permits clear differentiation between temporary and permanent shifts in cross-market linkages: the first case is contagion while the second one is simply a measure of interdependence among markets. With this new approach, we examine the "Tequila" and Asian crises and find evidence of contagion for both. During the Asian crisis, higher interdependence has also contributed to the diffusion of the crisis in Asia.

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Bibliographic Info

Article provided by Elsevier in its journal Emerging Markets Review.

Volume (Year): 10 (2009)
Issue (Month): 2 (June)
Pages: 140-150

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Handle: RePEc:eee:ememar:v:10:y:2009:i:2:p:140-150

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Web page: http://www.elsevier.com/locate/inca/620356

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Keywords: Contagion Financial crisis Causality test Frequency domain;

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References

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Citations

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Cited by:
  1. Rodrigo César de Castro Miranda & Benjamin Miranda Tabak & Mauricio Medeiros Junior, 2012. "Contagion in CDS, Banking and Equity Markets," Working Papers Series, Central Bank of Brazil, Research Department 293, Central Bank of Brazil, Research Department.
  2. Belén Martín-Barragán & Sofía B. Ramos & Helena Veiga, 2013. "Correlations between oil and stock markets : a wavelet-based approach," Statistics and Econometrics Working Papers, Universidad Carlos III, Departamento de Estadística y Econometría ws130504, Universidad Carlos III, Departamento de Estadística y Econometría.
  3. Walid, Chkili & Chaker, Aloui & Masood, Omar & Fry, John, 2011. "Stock market volatility and exchange rates in emerging countries: A Markov-state switching approach," Emerging Markets Review, Elsevier, Elsevier, vol. 12(3), pages 272-292, September.
  4. Bertrand Caudelon & Sessi Tokpavi, 2014. "A Nonparametric Test for Granger-causality in Distribution with Application to Financial Contagion," EconomiX Working Papers 2014-18, University of Paris West - Nanterre la Défense, EconomiX.
  5. Zied Ftiti & Aviral Tiwari & Amél Belanès, 2014. "Tests of Financial Market Contagion- Evolutionary Cospectral Analysis V.S. Wavelet Analysis," Working Papers 2014-062, Department of Research, Ipag Business School.
  6. Wei Yanfeng, 2013. "The Dynamic Relationships between Oil Prices and the Japanese Economy: A Frequency Domain Analysis," Review of Economics & Finance, Better Advances Press, Canada, vol. 3, pages 57-67, May.
  7. el Alaoui, AbdelKader & Masih, Mansur & Bacha, Obiyathulla & Asutay, Mehmet, 2014. "Leverage versus volatility: Evidence from the Capital Structure of European Firms," MPRA Paper 57682, University Library of Munich, Germany.
  8. Dewandaru, Ginanjar & Alaoui, AbdelKader & Bacha, Obiyathulla & Masih, Mansur, 2014. "Stock Market Co-movement and Shock Transmission: Islamic versus Conventional Equity Indices," MPRA Paper 56888, University Library of Munich, Germany.
  9. Theologos Dergiades & Costas Milas & Theodore Panagiotidis, 2013. "Tweets, Google trends and sovereign spreads in the GIIPS," LSE Research Online Documents on Economics 54405, London School of Economics and Political Science, LSE Library.
  10. Gallegati, Marco, 2012. "A wavelet-based approach to test for financial market contagion," Computational Statistics & Data Analysis, Elsevier, vol. 56(11), pages 3491-3497.
  11. Dewandaru, Ginanjar & Alaoui, Abdelkader & Masih, A. Mansur M. & Alhabshi, Syed Othman, 2013. "Comovement and resiliency of Islamic equity market: Evidence from GCC Islamic equity index based on wavelet analysis," MPRA Paper 56980, University Library of Munich, Germany.
  12. el Alaoui, AbdelKader & Masih, Mansur & Bacha, Obiyathulla & Asutay, Mehmet, 2014. "Leverage, Sensitivity to Market Risk and Contagion: A Multi-Country Analysis for Shari’ah(Islamic) Stock Screening," MPRA Paper 57685, University Library of Munich, Germany.
  13. Ciner, Cetin, 2011. "Eurocurrency interest rate linkages: A frequency domain analysis," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 498-505, October.

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