A component model for Dynamic Conditional Correlations: Disentangling interdependence from contagion

Jilber Urbina

MPRA Paper from University Library of Munich, Germany

Abstract: We analyze whether the crisis sourced in US is spread over the world by contagion or through interdependence. Within this work, contagion is defined as a significant increase in cross-correlations after a crisis hits a country, we assumed that correlations are not constant over time and also evolve according to a GARCH(1,1)-type structure which give rise to the use of the popular DCC model introduced by Engle (2002) and extended in Colacito et al. (2011) to disentangle the short and long run component of the total correlation of the portfolio under study. We link interdependence with long-run fluctuations in correlations and contagion is associated with the short-run correlations.

Keywords: contagion; financial crisis; stock markets; global transmission; market integration; Dynamic Conditional Correlations. (search for similar items in EconPapers)
JEL-codes: C01 C58 G1 G15 (search for similar items in EconPapers)
Date: 2013-09-12, Revised 2016-12-13
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