Testing for Contagion: a Time-Scale Decomposition

Andrea Cipollini and Iolanda Lo Cascio ()

Center for Economic Research (RECent) from University of Modena and Reggio E., Dept. of Economics "Marco Biagi"

Abstract: The aim of the paper is to test for ¯nancial contagion by estimating a simultaneous equation model subject to structural breaks. For this purpose, we use the Maximum Overlapping Discrete Wavelet Transform, MODWT, to decompose the covariance matrix of four asset returns on a scale by scale basis. This decomposition will enable us to identify the structural form model and to test for spillover e®ects between country speci¯c shocks during a crisis period. We distinguish between the case of the structural form model with a single dummy and the one with multiple dummies capturing shifts in the co-movement of asset returns occurring during periods of ¯nancial turmoil. The empirical results for four East Asian emerging stock markets show that, once we account for interdependence through an (unobservable) common factor, there is hardly any evidence of contagion during the 1997-1998 financial turbulence.

Keywords: wavelets; simultaneous equations model; financial contagion (search for similar items in EconPapers)
JEL-codes: C30 C51 G15 (search for similar items in EconPapers)
Pages: pages 22
Date: 2010-06
New Economics Papers: this item is included in nep-ban, nep-ecm and nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://155.185.68.2/Recentpaper/recent-wp47.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mod:recent:047

Access Statistics for this paper

More papers in Center for Economic Research (RECent) from University of Modena and Reggio E., Dept. of Economics "Marco Biagi" Contact information at EDIRC.
Bibliographic data for series maintained by ().