How to Estimate Spatial Contagion between Financial Markets
13 Pages Posted: 4 May 2005
Abstract
A definition of contagion between financial markets based on local correlation was introduced in Bradley and Taqqu (2004) and a test for contagion was proposed. For the test to be implemented, local correlation must be estimated. This paper describes an estimation procedure based on nonparametric local polynomial regression. The procedure is illustrated on the US and French equity market data.
Keywords: Contagion, local correlation, correlation breakdown, crisis period
JEL Classification: C12, C14
Suggested Citation: Suggested Citation
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