Measuring Financial Market Interdependence and Assessing Possible Contagion Risk in the EMEAP Region

Lillian Cheung, Laurence Fung and Chi-Sang Tam
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Lillian Cheung: Research Department, Hong Kong Monetary Authority
Laurence Fung: Research Department, Hong Kong Monetary Authority
Chi-Sang Tam: Research Department, Hong Kong Monetary Authority

No 818, Working Papers from Hong Kong Monetary Authority

Abstract: In this paper, we assess the interdependence between equity markets in the EMEAP region and the US, and across the EMEAP markets using two indicators, namely the dynamic conditional correlation and the spillover index. These indicators show that equity market interdependence has increased steadily since early 2006, and rose sharply following the collapse of the Lehman Brothers in September 2008. We also test for the existence of contagion, and find no significant evidence of contagion between equity markets in the US and the EMEAP region. On the other hand, intra-regional contagion is found to be more significant, suggesting that investors may have treated the regional markets indiscriminately when facing common external shocks.

Keywords: Contagion; Dynamic conditional correlation; Spillover index (search for similar items in EconPapers)
JEL-codes: G01 G12 G15 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2008-12
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:hkg:wpaper:0818

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