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Measuring Financial Market Interdependence and Assessing Possible Contagion Risk in the EMEAP Region

  • Lillian Cheung

    (Research Department, Hong Kong Monetary Authority)

  • Laurence Fung

    (Research Department, Hong Kong Monetary Authority)

  • Chi-sang Tam

    (Research Department, Hong Kong Monetary Authority)

Registered author(s):

    In this paper, we assess the interdependence between equity markets in the EMEAP region and the US, and across the EMEAP markets using two indicators, namely the dynamic conditional correlation and the spillover index. These indicators show that equity market interdependence has increased steadily since early 2006, and rose sharply following the collapse of the Lehman Brothers in September 2008. We also test for the existence of contagion, and find no significant evidence of contagion between equity markets in the US and the EMEAP region. On the other hand, intra-regional contagion is found to be more significant, suggesting that investors may have treated the regional markets indiscriminately when facing common external shocks.

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    File URL: http://www.info.gov.hk/hkma/eng/research/working/pdf/HKMAWP08_18_full.pdf
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    Paper provided by Hong Kong Monetary Authority in its series Working Papers with number 0818.

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    Length: 16 pages
    Date of creation: Dec 2008
    Date of revision:
    Handle: RePEc:hkg:wpaper:0818
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