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Spillover Effects of the U.S. Financial Crisis on Financial Markets in Emerging Asian Countries

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  • Bong-Han Kim
  • Hyeongwoo Kim
  • Bong-Soo Lee

Abstract

We examine spillover effects of the recent U.S. financial crisis on five emerging Asian countries by estimating conditional correlations of financial asset returns across countries using multivariate GARCH models. We propose a novel approach that simultaneously estimates the conditional correlation coefficient and the effects of its determining factors over time, which can be used to identify the channels of spillovers. We find some evidence of financial contagion around the collapse of Lehman Brothers in September 2008. We further find a 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 be significant factors affecting 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 auwp2012-06.

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Date of creation: Oct 2012
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Handle: RePEc:abn:wpaper:auwp2012-06

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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. 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.
  2. 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.

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