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Measuring financial contagion using general social interaction model with trade network structure

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  • Bingqing Li
  • Han Wang
  • Xinrong Xiao

Abstract

This article applies general social interaction model to measure contagion across stock markets in a given trade network. We divide the whole sample period into five types of subperiods according to the extent of negative and positive coexceedances. We find that interdependence and contagion in the given trade network exist significantly. Our empirical results also confirm previous evidences that contagion is stronger for extreme negative returns than for positive ones. However, the direction of asymmetry reverses when the degree of coexceedances becomes somewhat smaller. In addition, trade partners' macroeconomic fundamentals in trade network significantly impact on domestic stock market during extreme periods.

Suggested Citation

  • Bingqing Li & Han Wang & Xinrong Xiao, 2014. "Measuring financial contagion using general social interaction model with trade network structure," Applied Economics Letters, Taylor & Francis Journals, vol. 21(9), pages 631-635, June.
    • Handle: RePEc:taf:apeclt:v:21:y:2014:i:9:p:631-635
    DOI: 10.1080/13504851.2013.879279
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