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Detecting Contagion with Correlation: Volatility and Timing Matter

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Abstract

We examine whether contagion tests are affected by controls for volatility clustering and the collection of synchronized data sets. Without controlling for volatility clustering synchronization does not apparently matter. Once volatility clustering is accounted for synchronized data dramatically changes results.

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File URL: http://eprints.utas.edu.au/10447/1/DP2010-03_Dungey_Yalama_May2010.pdf
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Bibliographic Info

Paper provided by University of Tasmania, School of Economics and Finance in its series Working Papers with number 10447.

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Length: 13 pages
Date of creation: 01 May 2010
Date of revision: 01 May 2010
Publication status: Published by the University of Tasmania. Discussion paper 2010-03
Handle: RePEc:tas:wpaper:10447

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Postal: Private Bag 85, Hobart, Tasmania 7001
Phone: +61 3 6226 7672
Fax: +61 3 6226 7587
Web page: http://www.utas.edu.au/economics-finance/
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Related research

Keywords: Contagion; interdependence; timing; volatility spillover;

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References

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  1. Martens, Martin & Poon, Ser-Huang, 2001. "Returns synchronization and daily correlation dynamics between international stock markets," Journal of Banking & Finance, Elsevier, vol. 25(10), pages 1805-1827, October.
  2. Stefanie Kleimeier & Thorsten Lehnert & Willem F. C. Verschoor, 2008. "Measuring Financial Contagion Using Time-Aligned Data: The Importance of the Speed of Transmission of Shocks," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(4), pages 493-508, 08.
  3. Kristin Forbes & Roberto Rigobon, 1999. "No Contagion, Only Interdependence: Measuring Stock Market Co-movements," NBER Working Papers 7267, National Bureau of Economic Research, Inc.
  4. Vance L. Martin & Brenda Gonzalez-Hermosillo, & Mardi Dungey & Renee A. Fry, 2004. "Empirical Modelling of Contagion: A Review of Methodologies," Econometric Society 2004 Australasian Meetings 243, Econometric Society.
  5. Laura E. Kodres & Matthew Pritsker, 2002. "A Rational Expectations Model of Financial Contagion," Journal of Finance, American Finance Association, vol. 57(2), pages 769-799, 04.
  6. Hong, Yongmiao, 2001. "A test for volatility spillover with application to exchange rates," Journal of Econometrics, Elsevier, vol. 103(1-2), pages 183-224, July.
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Cited by:
  1. Abdullah Yalama, 2012. "International Financial Contagion: The Role of the UK," Bogazici Journal of Economics and Administrative Sciences, Bogazici University, Department of Economics, vol. 26(2), pages 115-129.

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