Measuring financial contagion using general social interaction model with trade network structure

Bingqing Li, Han Wang () and Xinrong Xiao

Applied Economics Letters, 2014, vol. 21, issue 9, 631-635

Abstract: This article applies general social interaction model to measure contagion across stock markets in a given trade network. We divide the whole sample period into five types of subperiods according to the extent of negative and positive coexceedances. We find that interdependence and contagion in the given trade network exist significantly. Our empirical results also confirm previous evidences that contagion is stronger for extreme negative returns than for positive ones. However, the direction of asymmetry reverses when the degree of coexceedances becomes somewhat smaller. In addition, trade partners' macroeconomic fundamentals in trade network significantly impact on domestic stock market during extreme periods.

Date: 2014
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DOI: 10.1080/13504851.2013.879279

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