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A component model for Dynamic Conditional Correlations: Disentangling interdependence from contagion

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  • Urbina, Jilber

Abstract

We analyze whether the crisis sourced in US is spread over the world by contagion or through interdependence. Within this work, contagion is defined as a significant increase in cross-correlations after a crisis hits a country, we assumed that correlations are not constant over time and also evolve according to a GARCH(1,1)-type structure which give rise to the use of the popular DCC model introduced by Engle (2002) and extended in Colacito et al. (2011) to disentangle the short and long run component of the total correlation of the portfolio under study. We link interdependence with long-run fluctuations in correlations and contagion is associated with the short-run correlations.

Suggested Citation

  • Urbina, Jilber, 2013. "A component model for Dynamic Conditional Correlations: Disentangling interdependence from contagion," MPRA Paper 75579, University Library of Munich, Germany, revised 13 Dec 2016.
    • Handle: RePEc:pra:mprapa:75579
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    contagion; financial crisis; stock markets; global transmission; market integration; Dynamic Conditional Correlations.;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G1 - Financial Economics - - General Financial Markets
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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