Testing for Asset Market Linkages: A new Approach based on Time-Varying Copulas
AbstractThis paper proposes a new approach based on time-varying copulas to test for the presence of increases in stock market interdependence after financial crises, also known as shift-contagion process. We show that the previous approaches that take into account changes in volatility regimes are biased when the DGP is either copula based or when there is a break in variance significantly different from the one in correlation. A sequential algorithm is then elaborated to remove this bias. Applied to the recent 1997 Asian crisis, it confirms that breaks in variances always precede those in conditional correlation. It also turns out that this financial turmoil has been characterized by shift-contagion.
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Bibliographic InfoPaper provided by Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization in its series Research Memoranda with number 052.
Date of creation: 2007
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financial economics and financial management ;
Other versions of this item:
- Hans Manner & Bertrand Candelon, 2010. "Testing For Asset Market Linkages: A New Approach Based On Time-Varying Copulas," Pacific Economic Review, Wiley Blackwell, vol. 15(3), pages 364-384, 08.
- NEP-ALL-2008-02-02 (All new papers)
- NEP-ECM-2008-02-02 (Econometrics)
- NEP-SEA-2008-02-02 (South East Asia)
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