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Spillover Effects of the U.S. Financial Crisis on Financial Markets in Emerging Asian Countries

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  • Bong-Han Kim
  • Hyeongwoo Kim
  • Bong-Soo Lee

Abstract

We examine spillover effects of the recent U.S. financial crisis on five emerging Asian countries by estimating conditional correlations of financial asset returns across countries using multivariate GARCH models. We propose a novel approach that simultaneously estimates the conditional correlation coefficient and the effects of its determining factors over time, which can be used to identify the channels of spillovers. We find some evidence of financial contagion around the collapse of Lehman Brothers in September 2008. We further find a dominant role of foreign investment for the conditional correlations in international equity markets. The dollar Libor-OIS spread, the sovereign CDS premium, and foreign investment are found to be significant factors affecting foreign exchange markets.

Suggested Citation

  • Bong-Han Kim & Hyeongwoo Kim & Bong-Soo Lee, 2015. "Spillover Effects of the U.S. Financial Crisis on Financial Markets in Emerging Asian Countries," Auburn Economics Working Paper Series auwp2015-01, Department of Economics, Auburn University.
  • Handle: RePEc:abn:wpaper:auwp2015-01
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    More about this item

    Keywords

    Financial Crisis; Spillover Effects; Contagion; Emerging Asian Countries; Dynamic Conditional Correlation; DCCX-MGARCH;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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