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Did China avoid the ‘Asian flu’? The contagion effect test with dynamic correlation coefficients

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  • Kuan-Min Wang
  • Thanh-Binh Nguyen Thi

Abstract

Many economists believe that China avoided the so-called Asian flu due to its strong balance of payments position and substantial foreign reserves. This study introduces an improved method for testing financial-crisis contagion and shows that crisis-contagion effects were significant among Thailand and the Chinese economic area (i.e. China, Hong Kong, and Taiwan) stock markets during the Asian financial crisis. The main contribution of this study is its use of a two-step procedure to identify the crisis dates for testing for contagion and data pertaining to a growing triangular economic area during the Asian financial crisis. This result suggests that if investors ignore the economic and financial information within regional markets, they will face an increase in uncertainty vis-à-vis investment returns.

Suggested Citation

  • Kuan-Min Wang & Thanh-Binh Nguyen Thi, 2013. "Did China avoid the ‘Asian flu’? The contagion effect test with dynamic correlation coefficients," Quantitative Finance, Taylor & Francis Journals, vol. 13(3), pages 471-481, February.
  • Handle: RePEc:taf:quantf:v:13:y:2013:i:3:p:471-481
    DOI: 10.1080/14697688.2012.708776
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    References listed on IDEAS

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    1. Ryan Lemand, 2003. "Should Stock Market Indexes Time Varying Correlations Be Taken Into Account? A Conditional Variance Multivariate Approach," Econometrics 0307004, University Library of Munich, Germany, revised 07 Dec 2020.
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    Cited by:

    1. Dungey, Mardi & Gajurel, Dinesh, 2015. "Contagion and banking crisis – International evidence for 2007–2009," Journal of Banking & Finance, Elsevier, vol. 60(C), pages 271-283.
    2. Dungey, Mardi & Matei, Marius & Treepongkaruna, Sirimon, 2014. "Identifying periods of financial stress in Asian currencies: the role of high frequency financial market data," Working Papers 2014-12, University of Tasmania, Tasmanian School of Business and Economics.
    3. Dungey, Mardi & Gajurel, Dinesh, 2014. "Equity market contagion during the global financial crisis: Evidence from the world's eight largest economies," Economic Systems, Elsevier, vol. 38(2), pages 161-177.
    4. Chang, Guang-Di & Chen, Chia-Shih, 2014. "Evidence of contagion in global REITs investment," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 148-158.
    5. Gad, Samar & Andrikopoulos, Panagiotis, 2019. "Diversification benefits of Shari'ah compliant equity ETFs in emerging markets," Pacific-Basin Finance Journal, Elsevier, vol. 53(C), pages 133-144.
    6. Urbina, Jilber, 2013. "A component model for Dynamic Conditional Correlations: Disentangling interdependence from contagion," MPRA Paper 75579, University Library of Munich, Germany, revised 13 Dec 2016.
    7. Neha Seth & Monica Sighania, 2017. "Financial market contagion: selective review of reviews," Qualitative Research in Financial Markets, Emerald Group Publishing, vol. 9(4), pages 391-408, November.

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