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Financial contagion, spillovers and causality in the Markov switching framework

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  • Jedrzej Białkowski
  • Dobromił Serwa

Abstract

In this paper, we introduce the concept of causality in the Markov switching framework into the analysis of financial inter-market dependencies. We extend the methodology of testing for financial spillovers between capital markets by explicitly defining contagion, spillovers and independence, and providing statistics to test for the existence of causality. We apply the methodology to stock index returns on the Japanese (Nikkei 225) and the Hong Kong (HSI) markets during the Asian crisis and find no evidence of contagion between the markets, but strong evidence of feedback spillovers between them.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Quantitative Finance.

Volume (Year): 5 (2005)
Issue (Month): 1 ()
Pages: 123-131

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Handle: RePEc:taf:quantf:v:5:y:2005:i:1:p:123-131

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Cited by:
  1. Roman Kozhan, 2006. "Multiple Priors and No-Transaction Region," Working Papers wpn06-16, Warwick Business School, Finance Group.
  2. Charlotte Christiansen, 2007. "Level-ARCH Short Rate Models with Regime Switching: Bivariate Modeling of US and European Short Rates," CREATES Research Papers 2007-05, School of Economics and Management, University of Aarhus.
  3. Bialkowski, Jedrzej & Gottschalk, Katrin & Wisniewski, Tomasz, 2006. "Political orientation of government and stock market returns," MPRA Paper 307, University Library of Munich, Germany, revised Nov 2006.
  4. Badunenko, Oleg & Fritsch, Michael & Stephan, Andreas, 2008. "Allocative efficiency measurement revisited--Do we really need input prices?," Economic Modelling, Elsevier, vol. 25(5), pages 1093-1109, September.
  5. Bialkowski, Jedrzej & Bohl, Martin T. & Serwa, Dobromil, 2006. "Testing for financial spillovers in calm and turbulent periods," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(3), pages 397-412, July.
  6. Vigenina, Denitsa & Kritikos, Alexander S., 2005. "The individual micro-lending contract: Is it a better design than joint-liability? - Evidence from Georgia," Working Paper Series 2005,10, European University Viadrina Frankfurt (Oder), The Postgraduate Research Programme Capital Markets and Finance in the Enlarged Europe.

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