Dynamic and Asymmetric Contagion Reactions of Financial Markets During the Last Subprime Crisis

Wei Zhou ()
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Wei Zhou: Yunnan University of Finance and Economics

Computational Economics, 2017, vol. 50, issue 2, No 3, 207-230

Abstract: Abstract To analyze the dynamic and asymmetric contagion reactions of financial markets during the last subprime crisis, this paper proposes a contagion reaction equation combined with the generalized auto regressive conditional heteroskedasticity process to develop a dynamic asymmetric contagion model, and then provides the Markov chain Monte Carlo estimation method of this new model. This paper then constructs an empirical study of two metals futures in China during the last subprime crisis period, applying the model to measure the impact of the contagion reactions as well as assess the model’s effectiveness. Our results show: (1) the financial contagion phenomenon is the reason why some financial markets experienced almost corresponding reactions during the subprime crisis; (2) financial contagion reactions behave conspicuously in three particular phases during the subprime crisis; (3) financial contagion reactions have predictive functions for financial market changes and can provide indicators for risk management during crisis periods.

Keywords: Financial contagion; Dynamic and asymmetric contagion reaction; DA-Contagion model; Futures market; Subprime crisis (search for similar items in EconPapers)
JEL-codes: G10 G11 G15 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s10614-016-9606-z

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