Testing for Contagion in International Financial Markets: Which Way to Go?

Sébastien Wälti ()
Additional contact information
Sébastien Wälti: Graduate Institute of International Studies
Authors registered in the RePEc Author Service: Sébastien Waelti

FAME Research Paper Series from International Center for Financial Asset Management and Engineering

Abstract: This paper tests for the existence of contagion during the 1997/98 Asian crisis. We interpret contagion as a significant change in the way that country-specific shocks are transmitted across international stock markets. Using the full-information framework of Favero and Giavazzi (2002) we find that the null hypothesis of no contagion is widely rejected. We also uncover evidence of an asymmetric transmission of shocks. Since our results contrast with those obtained by Rigobon (2001, 2002) using a limited-information methodology we present Monte Carlo simulations which show that certain necessary conditions must be satisfied for this method to have power. For parameter values in line with our econometric estimations we conclude that the power of the limited-information approach remains relatively low.

Keywords: Contagion; nonlinearities; international financial markets; Asian crisis; simultaneous equation models (search for similar items in EconPapers)
JEL-codes: C3 F3 F4 G1 (search for similar items in EconPapers)
Date: 2003-08
New Economics Papers: this item is included in nep-ets, nep-fin and nep-ifn
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.swissfinanceinstitute.ch/rp92.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.swissfinanceinstitute.ch/rp92.pdf [301 Moved Permanently]--> https://www.sfi.ch/rp92.pdf [302 Found]--> https://www.sfi.ch/en/rp92.pdf)

Related works:
Working Paper: Testing for contagion in international financial markets: which way to go? (2003)
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:fam:rpseri:rp92

Access Statistics for this paper

More papers in FAME Research Paper Series from International Center for Financial Asset Management and Engineering Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().