Changing vulnerability in Asia: contagion and spillovers

Moses Kangogo (), Mardi Dungey and Vladimir Volkov
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Moses Kangogo: University of Tasmania
Vladimir Volkov: University of Tasmania

Empirical Economics, 2023, vol. 64, issue 5, No 13, 2315-2355

Abstract: Abstract An increasing involvement of the Asian market in the global context plays a fundamental role in spreading shocks across the financial system. This paper examines the extent of vulnerability across Asian equity markets and the United States (US) equity market by distinguishing between spillovers and contagion. Spillovers are detected using a generalised historical decomposition method, while contagion is identified using a portfolio mimicking factor framework using moment conditions. The transmission of spillovers is assessed to capture the direction, strength and signs of the spillovers. The findings show evidence of changing vulnerability in Asia and the US. This is as a result of increased spillovers during crisis events and the presence of contagion. Stronger connections during crisis periods are evident as well as a general deepening of the global network. These connections may result in reduced opportunities for emerging markets. The findings suggest that caution is needed when developing regulations or methods to create a stable financial system.

Keywords: Financial stability; Financial networks; Asian markets; Financial crises; Spillover and contagion (search for similar items in EconPapers)
JEL-codes: C21 G01 G15 N25 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s00181-022-02322-5

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