EUROPEAN STOCK MARKETS CORRELATIONS IN A MARKOV SWITCHING FRAMEWORK

Iulia Lupu

Journal for Economic Forecasting, 2015, issue 3, 103-119

Abstract: The growing correlations in global markets during negative shocks generated theoretical and policy debate for the concept of contagion. Acknowledging the different forms of contagion, this paper investigates this phenomenon throughout the last financial crisis at the global scale. In the line with the related studies, we use the narrow definition of contagion - a considerable increase in stock market comovement as a response to a shock affecting one country (or a group of countries). We applied the DCC GARCH setting to compute the daily correlations for a time lapse beginning in 2000 and closing in 2015 to verify contagion in 49 stock indices. After that we calibrate a Markov switching analysis with two states on the series of correlations for each country with all the set of other countries. We identified the moments when regime switches happen in the same time and we found different patterns in the dynamics of these simultaneous changes.

Keywords: contagion; European stock markets; dynamic conditional correlations; GARCH; Markov switching models (search for similar items in EconPapers)
JEL-codes: C58 G01 G15 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.ipe.ro/rjef/rjef3_15/rjef3_2015p103-119.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:rjr:romjef:v::y:2015:i:3:p:103-119

Access Statistics for this article

Journal for Economic Forecasting is currently edited by Lucian Liviu Albu and Corina Saman

More articles in Journal for Economic Forecasting from Institute for Economic Forecasting Contact information at EDIRC.
Bibliographic data for series maintained by Corina Saman ( this e-mail address is bad, please contact ).