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Spillover Effects of the US Financial Crisis on Financial Markets in Emerging Asian Countries

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  • Bong-Han Kim
  • Hyeongwoo Kim

Abstract

We estimate dynamic conditional correlations of financial asset returns across countries by an array of multivariate GARCH models and analyze spillover effects of the recent US financial crisis on 5 emerging Asian countries. We find a symptom of financial contagion around the collapse of Lehman Brothers in September 2008. There appears to be a regime shift to substantially higher conditional correlations that persisted for a fairly short-period of time. We also propose a novel approach that allows simultaneous estimations of the conditional correlation coefficient and the effects of its determining factors over time, which can be used to identify channels of spillovers. We find the dominant role of foreign investment for the conditional correlations in international equity markets. The dollar Libor-OIS spread, the sovereign CDS premium, and foreign investment are found to play significant roles in foreign exchange markets.

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Bibliographic Info

Paper provided by Department of Economics, Auburn University in its series Auburn Economics Working Paper Series with number auwp2011-04.

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Date of creation: Apr 2011
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Handle: RePEc:abn:wpaper:auwp2011-04

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Keywords: Financial Crisis; Spillover Effects; Contagion; Emerging Asian Countries; Dynamic Conditional Correlation; DCCX-MGARCH;

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Cited by:
  1. Hwang, Eugene & Min, Hong-Ghi & Kim, Bong-Han & Kim, Hyeongwoo, 2013. "Determinants of stock market comovements among US and emerging economies during the US financial crisis," Economic Modelling, Elsevier, vol. 35(C), pages 338-348.
  2. Kim, Bong-Han & Kim, Hyeongwoo & Min, Hong-Ghi, 2013. "Reassessing the link between the Japanese yen and emerging Asian currencies," Journal of International Money and Finance, Elsevier, vol. 33(C), pages 306-326.

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