TESTING FOR CONTAGION: A CONDITIONAL CORRELATION ANALYSIS

Guglielmo Maria Caporale, Rea Cipollini and Nicola Spagnolo
Additional contact information
Rea Cipollini: queen mary university of london

International Finance from University Library of Munich, Germany

Abstract: In this paper we test for contagion within the East Asian region, contagion being defined as a significant increase in the degree of co- movement between stock returns in different countries. For this purpose we use a parameter stability test and, following Rigobon (2004), we control for three types of bias, resulting from heteroscedasticity, endogeneity and omitted variable respectively. The null of interdependence against the alternative of contagion is then tested as an over-identifying restriction. Unlike other studies, our approach is based on full-sample estimation, and hence avoids the power problems arising from the typical situation of a large “non-crisis” and a small “crisis” sample. We also select endogenously the breakpoints corresponding to the beginning of the contagion period, and finally we impose more plausible restrictions in order to identify the system. Our findings suggest the existence of contagion within the East Asian region, consistently with crisis-contingent theories of asset market linkages.

Keywords: Contagion; Financial Crises; Conditional Correlation (search for similar items in EconPapers)
JEL-codes: F3 F4 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2004-06-11
New Economics Papers: this item is included in nep-fin and nep-ifn
Note: Type of Document - pdf; pages: 18
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/if/papers/0406/0406003.pdf (application/pdf)

Related works:
Journal Article: Testing for contagion: a conditional correlation analysis (2005)
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:wpa:wuwpif:0406003

Access Statistics for this paper

More papers in International Finance from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ( this e-mail address is bad, please contact ).