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Shift versus traditional contagion in Asian markets

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Author Info
Thomas Flavin
Ekaterini Panopoulou

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Abstract

We test for shift contagion between pairs of East Asian equity markets over a sample including the financial crisis of the 1990’s. Employing the methodology of Gravelle et al. (2006), we find little evidence of change in the mechanism by which common shocks are transmitted between countries. Furthermore, we analyze the effects of idiosyncratic shocks and generate time-varying conditional correlations. While there clearly is significant time variation in the pair wise correlations, this is not more pronounced during the Asian crisis than it had been historically.

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Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp176.

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Date of creation: 16 Nov 2006
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Handle: RePEc:iis:dispap:iiisdp176

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Keywords: Shift contagion; Financial market crises; Regime switching; Structural transmission; Emerging markets;

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  1. Mardi Dungey & Renee Fry & Vance L. Martin, 2004. "Currency Market Contagion In The Asia-Pacific Region," Australian Economic Papers, Blackwell Publishing, vol. 43(4), pages 379-395, December. [Downloadable!] (restricted)
  2. Thomas Flavin & Ekaterini Panopoulou, 2006. "International Portfolio Diversification and Market Linkages in the presence of regime-switching volatility," The Institute for International Integration Studies Discussion Paper Series iiisdp167, IIIS. [Downloadable!]
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  3. Massimo Guidolin & Allan Timmermann, 2005. "Economic Implications of Bull and Bear Regimes in UK Stock and Bond Returns," Economic Journal, Royal Economic Society, vol. 115(500), pages 111-143, 01. [Downloadable!] (restricted)
  4. Bekaert, Geert & Harvey, Campbell R, 1995. " Time-Varying World Market Integration," Journal of Finance, American Finance Association, vol. 50(2), pages 403-44, June. [Downloadable!] (restricted)
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  5. King, Mervyn A & Wadhwani, Sushil, 1990. "Transmission of Volatility between Stock Markets," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 3(1), pages 5-33. [Downloadable!] (restricted)
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  6. Rigobon, Roberto, 2003. "On the measurement of the international propagation of shocks: is the transmission stable?," Journal of International Economics, Elsevier, vol. 61(2), pages 261-283, December. [Downloadable!] (restricted)
  7. Kristin J. Forbes & Roberto Rigobon, 2002. "No Contagion, Only Interdependence: Measuring Stock Market Comovements," Journal of Finance, American Finance Association, vol. 57(5), pages 2223-2261, October. [Downloadable!] (restricted)
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  8. William N. Goetzmann & Lingfeng Li & K. Geert Rouwenhorst, 2001. "Long-Term Global Market Correlations," Yale School of Management Working Papers ysm237, Yale School of Management. [Downloadable!]
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  9. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March. [Downloadable!] (restricted)
  10. Mardi Dungey & Renée Fry & Vance L. Martin, 2006. "Correlation, Contagion, and Asian Evidence," Asian Economic Papers, MIT Press, vol. 5(2), pages 32-72, June. [Downloadable!] (restricted)
  11. Karolyi, G Andrew & Stulz, Rene M, 1996. " Why Do Markets Move Together? An Investigation of U.S.-Japan Stock Return Comovements," Journal of Finance, American Finance Association, vol. 51(3), pages 951-86, July. [Downloadable!] (restricted)
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  12. Andrew Ang & Geert Bekaert, 2002. "International Asset Allocation With Regime Shifts," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 15(4), pages 1137-1187.
  13. Kaminsky, Graciela L. & Schmukler, Sergio L., 1999. "What triggers market jitters?: A chronicle of the Asian crisis," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 537-560, August. [Downloadable!] (restricted)
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  14. Roberto Rigobon, 2003. "Identification Through Heteroskedasticity," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 777-792, 09. [Downloadable!] (restricted)
  15. Gravelle, Toni & Kichian, Maral & Morley, James, 2006. "Detecting shift-contagion in currency and bond markets," Journal of International Economics, Elsevier, vol. 68(2), pages 409-423, March. [Downloadable!] (restricted)
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  16. Geert Bekaert & Campbell R. Harvey & Angela Ng, 2005. "Market Integration and Contagion," Journal of Business, University of Chicago Press, vol. 78(1), pages 39-70, January. [Downloadable!]
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  17. Michael D. Bordo & Antu P. Murshid, 2000. "Are Financial Crises Becoming Increasingly More Contagious? What is the Historical Evidence on Contagion?," NBER Working Papers 7900, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  18. Karolyi, G Andrew, 2003. "Does International Financial Contagion Really Exist?," International Finance, Blackwell Publishing, vol. 6(2), pages 179-99, Summer. [Downloadable!] (restricted)
  19. Giancarlo Corsetti & Marcello Pericoli & Massimo Sbracia, 2001. "Correlation Analysis of Financial Contagion: What One Should Know Before Running a Test," Working Papers 822, Economic Growth Center, Yale University. [Downloadable!]
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  20. Dornbusch, Rudiger & Park, Yung Chul & Claessens, Stijn, 2000. "Contagion: Understanding How It Spreads," World Bank Research Observer, Oxford University Press, vol. 15(2), pages 177-97, August.
  21. Shaun Bond & Mardi Dungey & Renée Fry, 2006. "A Web Of Shocks: Crises Across Asian Real Estate Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 32(3), pages 253-274, May. [Downloadable!] (restricted)
  22. Marcello Pericoli & Massimo Sbracia, 2003. "A Primer on Financial Contagion," Journal of Economic Surveys, Blackwell Publishing, vol. 17(4), pages 571-608, 09. [Downloadable!] (restricted)
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  23. Caporale, Guglielmo Maria & Cipollini, Andrea & Spagnolo, Nicola, 2005. "Testing for contagion: a conditional correlation analysis," Journal of Empirical Finance, Elsevier, vol. 12(3), pages 476-489, June. [Downloadable!] (restricted)
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