Shift Contagion in Asset Markets
Toni Gravelle (),
Maral Kichian and
James Morley ()
Staff Working Papers from Bank of Canada
The authors develop a new methodology to investigate how crises cause the relationship between financial variables to change. Two possible sources of increased co-movement between markets during high-variance episodes are considered: larger common shocks operating through standard market linkages, and a structural change in the propagation of shocks between markets, called “shift contagion.” The methodology has three key features: (i) high- and low-variance episodes are model-determined, rather than exogenously assigned; (ii) the markets where crises originate need not be known; and (iii) the approach provides an unambiguous test of shift contagion. Applications to bivariate returns in currency markets of developed countries and bond markets of emerging-market countries suggest that shift contagion occurs among the former but not the latter.
Keywords: Financial markets; Econometric and statistical methods (search for similar items in EconPapers)
JEL-codes: C32 F32 G15 (search for similar items in EconPapers)
Pages: 38 pages
New Economics Papers: this item is included in nep-cfn, nep-fmk, nep-ifn, nep-mac and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:03-5
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