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Forecasting financial crises and contagion in Asia using dynamic factor analysis

  • Cipollini, A.
  • Kapetanios, G.

In this paper we use principal components analysis to obtain vulnerability indicators able to predict financial turmoil. Probit modelling through principal components and also stochastic simulation of a Dynamic Factor model are used to produce the corresponding probability forecasts regarding the currency crisis events affecting a number of East Asian countries during the 1997-1998 period. The principal components model improves upon a number of competing models, in terms of out-of-sample forecasting performance.

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Article provided by Elsevier in its journal Journal of Empirical Finance.

Volume (Year): 16 (2009)
Issue (Month): 2 (March)
Pages: 188-200

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Handle: RePEc:eee:empfin:v:16:y:2009:i:2:p:188-200
Contact details of provider: Web page: http://www.elsevier.com/locate/jempfin

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