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On the Stability of Domestic Financial Market Linkages in the Presence of time-varying Volatility

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  • Thomas J. Flavin
  • Ekaterini Panopoulou
  • Deren Unalmis

Abstract

We analyze the stability of domestic financial linkages between periods of calm and turbulent market conditions. Our model develops a simultaneous test of shift contagion and bi-directional pure contagion, which is applied to the equity and currency markets of a group of East Asian emerging economies. Our results show a great deal of instability in these markets with widespread evidence of pure contagion in both directions. There is less evidence of shift contagion with the transmission of common shocks unchanged between regimes for the majority of countries.

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Paper provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its series Working Papers with number 0810.

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Date of creation: 2008
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Handle: RePEc:tcb:wpaper:0810

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Keywords: Shift contagion; Pure contagion; Financial market crises; Regime switching;

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Cited by:
  1. Khallouli, Wajih & Sandretto, René, 2012. "Testing for “Contagion” of the Subprime Crisis on the Middle East and North African Stock Markets: A Markov Switching EGARCH Approach," Journal of Economic Integration, Center for Economic Integration, Sejong University, Center for Economic Integration, Sejong University, vol. 27, pages 134-166.
  2. Doruk Kucuksarac & Pinar Ozlu & Deren Unalmis, 2012. "Kuresel Kriz, Avrupa Borc Krizi ve Gelismekte Olan Piyasalarda Bulasicilik Etkisi (Global Crisis, European Debt Crisis and Contagion in Emerging Markets)," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 12(2), pages 25-35.
  3. Walid, Chkili & Chaker, Aloui & Masood, Omar & Fry, John, 2011. "Stock market volatility and exchange rates in emerging countries: A Markov-state switching approach," Emerging Markets Review, Elsevier, Elsevier, vol. 12(3), pages 272-292, September.
  4. Ahmet Sensoy & Benjamin M. Tabak, 2014. "Dynamic spanning trees in stock market networks: The case of Asia-Pacific," Working Papers Series, Central Bank of Brazil, Research Department 351, Central Bank of Brazil, Research Department.
  5. Suleyman Hilmi Kal & Ferhat Arslaner & Nuran Arslaner, 2014. "Bond Markets, Stock Markets and Exchange Rates: A Dynamic Relationship," Working Paper, Research and Business Development Department, Borsa Istanbul 18, Research and Business Development Department, Borsa Istanbul.
  6. Doruk Kucuksarac & Pinar Ozlu & Deren Unalmis, 2012. "Kuresel Kriz, Avrupa Borc Krizi ve Gelismekte Olan Piyasalarda Bulasicilik Etkisi," CBT Research Notes in Economics, Research and Monetary Policy Department, Central Bank of the Republic of Turkey 1204, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.

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