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Joint tests of contagion with applications to financial crises

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  • Renée Fry-McKibbin
  • Cody Yu-Ling Hsiao
  • Vance L. Martin

Abstract

Joint tests of contagion are derived which are designed to have power where contagion operates simultaneously through coskewness, cokurtosis and covolatility. Finite sample properties of the new tests are evaluated and compared with existing tests of contagion that focus on a single channel. Applying the tests to daily Eurozone equity returns from 2005 to 2014 shows that contagion operates through higher order moment channels during the GFC and the European debt crisis, which are not necessarily detected by traditional tests based on correlations.

Suggested Citation

  • Renée Fry-McKibbin & Cody Yu-Ling Hsiao & Vance L. Martin, 2017. "Joint tests of contagion with applications to financial crises," CAMA Working Papers 2017-65, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  • Handle: RePEc:een:camaaa:2017-65
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    References listed on IDEAS

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    Cited by:

    1. Renée Fry-McKibbin & Cody Yu-Ling Hsiao & Vance L. Martin, 2018. "Measuring financial interdependence in asset returns with an application to euro zone equities," CAMA Working Papers 2018-05, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

    More about this item

    Keywords

    Coskewness; Cokurtosis; Covolatility; Lagrange multiplier tests; European financial crisis; equity markets.;

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • F3 - International Economics - - International Finance

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