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Contagion Testing in Embryonic Markets under Alternative Stressful US Market Scenarios

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  • Scott M. R. Mahadeo
  • Reinhold Heinlein
  • Gabriella Deborah Legrenzi

Abstract

We consolidate alternative ways for identifying stable and stressful scenarios in the S&P 500 market to construct contagion tests for recipient markets vulnerable to disturbances from this source market. The S&P 500 is decomposed into discrete conditions of: (1) Tranquil versus turbulent volatility; (2) Bull versus bear market phases; (3) Normal periods versus asset bubbles and crises. We analyse the relationship between the S&P 500 and major emerging Caribbean stock markets and find that, despite the prominent trade related exposure to the US, financial linkages are much less pronounced than might be expected outside of the Great Recession.

Suggested Citation

  • Scott M. R. Mahadeo & Reinhold Heinlein & Gabriella Deborah Legrenzi, 2019. "Contagion Testing in Embryonic Markets under Alternative Stressful US Market Scenarios," CESifo Working Paper Series 8029, CESifo.
    • Handle: RePEc:ces:ceswps:_8029
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    References listed on IDEAS

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    More about this item

    Keywords

    Caribbean; contagion; correlation; S&P 500; stock market; United States;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G01 - Financial Economics - - General - - - Financial Crises

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