Financial Market Contagion during the Global Financial Crisis
AbstractScholars worldwide have provided both theoretical and empirical insights into financial market contagion. The devastation from the recent financial crisis is immeasurable, and researchers commonly believe that the crisis seemingly originated from the U.S. and spread immediately to the other global financial hubs. Several studies have been conducted on financial markets, but this issue has yet to be addressed. Using U.S. dollar-denominated MSCI daily indices for the period 2006–2010, this paper employs Dynamic Conditional Correlation-Generalized Autoregressive Conditional Heteroskedasticity (DCC-GARCH) and vector error correction (VEC) models to address the multi-dimensional phenomena around financial market contagion. The empirical results demonstrate the existence of contagion in the financial markets during the global crisis. However, the crisis originated in the U.S., and its effects escalated immediately to the other global markets. The results also indicate that benefits from portfolio diversification decayed significantly among countries during the crisis.
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Bibliographic InfoPaper provided by Center for Innovation and Technology Research, Blekinge Institute of Technology in its series CITR Working Paper Series with number 2014/05.
Length: 38 pages
Date of creation: 02 Apr 2014
Date of revision:
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Contagion; Financial Markets; Global Crisis;
Find related papers by JEL classification:
- C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- G01 - Financial Economics - - General - - - Financial Crises
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-04-11 (All new papers)
- NEP-FMK-2014-04-11 (Financial Markets)
- NEP-GER-2014-04-11 (German Papers)
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