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Shift Contagion in Asset Markets

Author

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  • Toni Gravelle
  • Maral Kichian
  • James Morley

Abstract

The authors develop a new methodology to investigate how crises cause the relationship between financial variables to change. Two possible sources of increased co-movement between markets during high-variance episodes are considered: larger common shocks operating through standard market linkages, and a structural change in the propagation of shocks between markets, called “shift contagion.” The methodology has three key features: (i) high- and low-variance episodes are model-determined, rather than exogenously assigned; (ii) the markets where crises originate need not be known; and (iii) the approach provides an unambiguous test of shift contagion. Applications to bivariate returns in currency markets of developed countries and bond markets of emerging-market countries suggest that shift contagion occurs among the former but not the latter.

Suggested Citation

  • Toni Gravelle & Maral Kichian & James Morley, 2003. "Shift Contagion in Asset Markets," Staff Working Papers 03-5, Bank of Canada.
  • Handle: RePEc:bca:bocawp:03-5
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    References listed on IDEAS

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    6. King, Mervyn A & Wadhwani, Sushil, 1990. "Transmission of Volatility between Stock Markets," Review of Financial Studies, Society for Financial Studies, vol. 3(1), pages 5-33.
    7. Kristin J. Forbes & Roberto Rigobon, 2002. "No Contagion, Only Interdependence: Measuring Stock Market Comovements," Journal of Finance, American Finance Association, vol. 57(5), pages 2223-2261, October.
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    Cited by:

    1. Ciccarelli, Matteo & Rebucci, Alessandro, 2003. "Measuring contagion with a Bayesian, time-varying coefficient model," Working Paper Series 263, European Central Bank.
    2. John Beirne & Jana Gieck, 2014. "Interdependence and Contagion in Global Asset Markets," Review of International Economics, Wiley Blackwell, vol. 22(4), pages 639-659, September.

    More about this item

    Keywords

    Financial markets; Econometric and statistical methods;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • 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

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