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Assessing stock market dependence and contagion

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  • Omar Abbara
  • Mauricio Zevallos

Abstract

This paper assesses evidence of the linkages and contagion among important stock markets in Latin America (Brazil, Mexico and Argentina), Europe (UK and Germany), Asia (Japan and Singapore) and the USA from 6 September 1995 to 19 April 2013. To accomplish this task, this paper combines copula modelling with time-varying parameters and pair-copula composition of multiple dependence. The bivariate analyses show an asymmetric dependence between the stock markets as well as contagion. In addition, this work proposes a method to assess the linkages and contagion between two stock markets which takes into account the effects of a third stock market. In applying this method, conditioned on the USA market, most of the evidence of contagion between the Latin American or European markets disappears, but important dependence levels still remain.

Suggested Citation

  • Omar Abbara & Mauricio Zevallos, 2014. "Assessing stock market dependence and contagion," Quantitative Finance, Taylor & Francis Journals, vol. 14(9), pages 1627-1641, September.
    • Handle: RePEc:taf:quantf:v:14:y:2014:i:9:p:1627-1641
    DOI: 10.1080/14697688.2013.859390
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    Cited by:

    1. Bouteska, Ahmed & Sharif, Taimur & Abedin, Mohammad Zoynul, 2023. "COVID-19 and stock returns: Evidence from the Markov switching dependence approach," Research in International Business and Finance, Elsevier, vol. 64(C).
    2. Andrieş, Alin Marius & Ongena, Steven & Sprincean, Nicu & Tunaru, Radu, 2022. "Risk spillovers and interconnectedness between systemically important institutions," Journal of Financial Stability, Elsevier, vol. 58(C).
    3. Rehman, Mobeen Ur & Ahmad, Nasir & Shahzad, Syed Jawad Hussain & Vo, Xuan Vinh, 2022. "Dependence dynamics of stock markets during COVID-19," Emerging Markets Review, Elsevier, vol. 51(PB).
    4. Han, Xuyuan & Liu, Zhenya & Wang, Shixuan, 2022. "An R-vine copula analysis of non-ferrous metal futures with application in Value-at-Risk forecasting," Journal of Commodity Markets, Elsevier, vol. 25(C).
    5. Huang, Wanling & Mollick, André Varella & Nguyen, Khoa Huu, 2016. "U.S. stock markets and the role of real interest rates," The Quarterly Review of Economics and Finance, Elsevier, vol. 59(C), pages 231-242.
    6. Kjersti Aas, 2016. "Pair-Copula Constructions for Financial Applications: A Review," Econometrics, MDPI, vol. 4(4), pages 1-15, October.
    7. Wanling Huang & André Varella Mollick & Khoa Huu Nguyen, 2017. "Dynamic responses and tail-dependence among commodities, the US real interest rate and the dollar," Empirical Economics, Springer, vol. 53(3), pages 959-997, November.
    8. Imen Bedoui-Belghith & Slaheddine Hallara & Faouzi Jilani, 2023. "Crisis transmission degree measurement under crisis propagation model," SN Business & Economics, Springer, vol. 3(1), pages 1-27, January.

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