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The Contagion Effects of Financial Crisis on Stock Markets: What Can We Learn From a Cointegrated Vector Autoregressive Approach for Developed Countries?

Listed author(s):
  • Manuel J. Rocha Armada

    (University of Minho, Braga, Portugal)

  • João Leitão

    (University of Beira Interior, Covilhã, Portugal)

  • Júlio Lobão

    (University of Porto, Porto, Portugal)

Abstract This research applies a set of diversified tests that have not been used on a joint basis to study the contagion effects of financial crises in the stock markets of developed countries. This is particularly important due to the fact that the existing literature has, so far, failed to adequately address the effects of financial crisis on such markets. Several empirical tests are performed on a joint basis: correlation tests; Kolmogorov-Smirnov tests; extreme value tests; and tests based on the estimation of Cointegrated Vector Autoregressive models. Significant evidence on the existence of contagion effects is provided with regards to the Asia crisis, the Russia crisis and the September 11 crisis. Finally, limited evidence is detected regarding the contagion effects on Brazil, Argentina and Mexico crisis. Resumen Esta investigación aplica un conjunto de pruebas diversificadas que no se han utilizado en forma conjunta para estudiar los efectos de contagio de las crisis financieras en los mercados bursátiles de los países desarrollados. Esto es particularmente importante debido al hecho de que en la literatura existente no se abordan adecuadamente los efectos de las crisis financieras en dichos mercados. Se realizan varias pruebas empíricas en forma conjunta: pruebas de correlación; de Kolmogorov-Smirnov; de valor extremo; y las pruebas basadas en la estimación de modelos de vectores autorregresivos cointegrados. Se muestra evidencia significativa de efectos de contagio durante la crisis asiática, la crisis de Rusia y la crisis del 11 de Septiembre. Por último, los efectos de contagio encontrados durante las crisis en Brasil, Argentina y México son limitados.

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File URL: http://www.remef.org.mx/c/images/uploads/documentos/19/articulo_manuel_rocha.pdf
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Article provided by Instituto Mexicano de Ejecutivos de Finanzas. Remef in its journal Remef - The Mexican Journal of Economics and Finance.

Volume (Year): (2012)
Issue (Month): (October)
Pages:

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Handle: RePEc:imx:journl:20121019
Contact details of provider: Web page: http://www.remef.org.mx/

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  1. Axel Dreher & Bernhard Herz & Volker Karb, 2006. "Is there a causal link between currency and debt crises?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 11(4), pages 305-325.
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  8. R. Gaston Gelos & Ratna Sahay, 2001. "Financial market spillovers in transition economies," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 9(1), pages 53-86, March.
  9. A. G. Malliaris & Jorge L. Urrutia, 2005. "The International Crash of October 1987: Causality Tests," World Scientific Book Chapters,in: Economic Uncertainty, Instabilities And Asset Bubbles Selected Essays, chapter 16, pages 251-262 World Scientific Publishing Co. Pte. Ltd..
  10. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
  11. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
  12. Jorge A. Chan-Lau & Donald J. Mathieson & James Y. Yao, 2004. "Extreme Contagion in Equity Markets," IMF Staff Papers, Palgrave Macmillan, vol. 51(2), pages 1-8.
  13. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
  14. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
  15. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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