When Is Contagion Spread in Asia? Markers for Structural Change

Abstract

We analyze our assertion of a late blooming continuous crisis incidence in Asia in parametric and semi parametric joint distributions implied by the commonly tested Archimedean Copula in Conditional Score models (SGASC/DCS) and use GARCH DCC MIDAS constructions to measure time varying parameters as well as Vine Copula based joint distribution functions using the literature from Creal (2013), Harvey (2012), Harvey (2013). We identify markers for structural change identifying with the changing global role of the region and confirm the independence of the region from developed markets in the Global Financial Crisis of 2007. The sample includes markets indices from 2001-2016 for India, China, Hongkong, Taiwan, Korea, Singapore, Malaysia, Indonesia, Thailand and Philippines. We subsequently test for a contiguous period of 1/2009 - 6/2012 for the region and look for pre-crisis, crisis and post crisis markers and elasticities.

The study verifies available banking crisis and systemic crisis literature in that Asia was shielded from the crisis till 2009 and given the impact of European banks on Asian markets' international liquidity, stretches till 2012. There is evidence of a new normal post crisis which may also be tested for other Emerging Market geographies. Dependence structures using copula prove robust in identifying nonlinear dependence.

Keywords: Financial Crises, Copula, Structural Change

JEL Classification: G3