Financial contagion in the futures markets amidst global geo-economic events

Ahmad Danial Zainudin and Azhar Mohamad

The Quarterly Review of Economics and Finance, 2021, vol. 81, issue C, 288-308

Abstract: This paper examines the occurrence of financial contagion in the futures markets, amidst global geo-economic events, for the period of 2010–2020. Our dataset consists of 40 pairs of futures contracts and underlying spots covering agricultural, energy, stock index, and metal futures. We apply the Wavelet Correlation Breakdown test to observe any abrupt changes in spot-futures correlation before and after 2010. We then use the spectrogram by Wavelet Power and Energy Spectrum to approximate the duration of spot and futures volatility caused by the financial contagion. The Wavelet Correlation Breakdown tests’ results confirm the existence of financial contagion in the futures markets. Based on Wavelet Power and Energy analysis’s spectrogram, we also find that the contagion in the futures markets during global geo-economic events typically lasts about two months.

Keywords: Financial contagion; Futures; Correlation breakdown test; Volatility; Wavelet (search for similar items in EconPapers)
JEL-codes: G13 G15 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:81:y:2021:i:c:p:288-308

DOI: 10.1016/j.qref.2021.06.021

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