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Contagion in International Stock and Currency Markets During Recent Crisis Episodes

Listed author(s):
  • Pami Dua

    (Department of Economics, Delhi School of Economics, University of Delhi, India)

  • Divya Tuteja

    (Department of Economics, Delhi School of Economics, University of Delhi, India)

This paper investigates contagion across stock and currency markets of China, Eurozone, India, Japan and US during global financial crisis and Eurozone crisis. The crisis periods are selected using Markov-switching models for US and Eurozone markets. We, then, utilize the DCC-GARCH model to estimate conditional correlation among the assets and test for contagion/flight to quality effects during the crises. The results show significant contagion as well as flight to quality effects both across and within asset classes. We examine the impact of financial stress index on the correlation across markets and find that portfolio diversification benefits for equity markets may be non-existent.

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Paper provided by Centre for Development Economics, Delhi School of Economics in its series Working papers with number 258.

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Length: 40 pages
Date of creation: Jul 2016
Handle: RePEc:cde:cdewps:258
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