Detecting financial contagion using a new nonparametric measure of asymmetric comovements

Feipeng Zhang, Yixiong Xu and Di Yuan

International Review of Economics & Finance, 2024, vol. 89, issue PA, 284-296

Abstract: This article proposes a new nonparametric test to detect financial contagion by using a Kendall’s tau-based asymmetric measure of comovements between two time series. Simulation studies demonstrate the reasonable size performance and good power in finite sample of our test. An empirical application of our test on exchange rate markets before and after the COVID-19 pandemic exhibits evidence of contagion between the pairs of AUD-CNY, AUD-JPY, CNY-JPY and EUR-JPY. Comparing the comovement changes at different pandemic prevention policy stages, the JPY currency is contagious with all other exchange rates and is the principal risk-bearer on exchange markets, whereas the EUR is more independent, with no evidence of contagion between the EUR and other currencies except JPY. These findings provide valuable reference and implications for policymakers and financial investors.

Keywords: Asymmetric comovements; Contagion; Exchange rate; Nonparametric test (search for similar items in EconPapers)
JEL-codes: C12 C14 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:89:y:2024:i:pa:p:284-296

DOI: 10.1016/j.iref.2023.07.067

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