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Financial contagion and the TIR-MIDAS model

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  • Ye, Wuyi
  • Jiang, Kunliang
  • Liu, Xiaoquan

Abstract

In this paper, we develop a new approach for modeling financial contagion. It is combines the tail index regression, which specifically describes fat tails in asset returns, with the information contained in macroeconomic variables via the mixed data sampling technique in order to identify contagion in international equity markets. Empirically, our model successfully detects structural breaks in the tails of equity return distributions between the US and five developed economies during the recent Great Recession, and identifies the existence of contagion for two of them. The findings underscore our method as a flexible and reliable alternative for examining contagion.

Suggested Citation

  • Ye, Wuyi & Jiang, Kunliang & Liu, Xiaoquan, 2021. "Financial contagion and the TIR-MIDAS model," Finance Research Letters, Elsevier, vol. 39(C).
    • Handle: RePEc:eee:finlet:v:39:y:2021:i:c:s154461232030132x
    DOI: 10.1016/j.frl.2020.101589
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    Cited by:

    1. Jorge Omar Razo-De-Anda & Luis Lorenzo Romero-Castro & Francisco Venegas-Martínez, 2023. "Contagion Patterns Classification in Stock Indices: A Functional Clustering Analysis Using Decision Trees," Mathematics, MDPI, vol. 11(13), pages 1-27, July.

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    More about this item

    Keywords

    Hill Estimator; Time Series Analysis; Financial Crisis; Macroeconomic Variables;
    All these keywords.

    JEL classification:

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

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