Contagion Risks in Emerging Stock Markets: New Evidence from Asia and Latin America

Thi Bich Ngoc Tran
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Thi Bich Ngoc Tran: College of Economics, Hue University, Hue City 49127, Vietnam

JRFM, 2018, vol. 11, issue 4, 1-20

Abstract: The purpose of this study is to investigate whether contagion actually occurred during three well-known financial crises in 1990s and 2000s: Mexican “Tequila” crisis in 1994, Asian “flu” crisis in 1997 and US subprime crisis in 2007. We apply dynamic conditional correlation models (DCC-GARCH(1,1)) to daily stock-index returns of eight Asian stock markets, six Latin American stock markets and US stock market. Defining contagion as a significant increase of dynamic conditional correlations, we test for contagion by using a difference test for DCC means. The results obtained shows that there is a pure contagion from crisis-originating markets to other emerging stock markets during these three crisis. However, the contagion effects are different from one crisis to the other. Firstly, during the Mexican crisis, contagion is detected in only the Latin American region. Secondly, during the Asian crisis, we find evidence of contagion in some markets in both the Asian and Latin American regions. Finally, contagion is proved to be present in all stock markets with the only exception for Brazil during US subprime crisis.

Keywords: international financial contagion; shift contagion; emerging stock markets; Asian crisis; Mexican crisis; US subprime crisis; DCC-GARCH (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2018
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