Contagion effect of financial crisis on OECD stock markets
AbstractIn this paper we investigate the contagion effect between stock markets of U.S and sixteen OECD countries due to Global Financial Crisis (2007-2009). We apply Dynamic Conditional Correlation GARCH model Engle (2002) to daily stock price data (2002-2009). In order to recognize the contagion effect, we test whether the mean of the DCC coefficients in crisis period differs from that in the pre-crisis period. The identification of break point due to the crisis is made by Bai-Perron (1998, 2003) structural break test. We find a significant increase in the mean of dynamic conditional correlation coefficient between U.S and OECD stock markets under study during the crisis period for most of the countries. This proves the existence of contagion between the US and the OECD stock markets. --
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Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2011-15.
Date of creation: 2011
Date of revision:
Financial crisis; integration; contagion; multivariate GARCH-DCC model;
Find related papers by JEL classification:
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- F15 - International Economics - - Trade - - - Economic Integration
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-25 (All new papers)
- NEP-EEC-2011-06-25 (European Economics)
- NEP-FMK-2011-06-25 (Financial Markets)
- NEP-IFN-2011-06-25 (International Finance)
- NEP-MAC-2011-06-25 (Macroeconomics)
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