Market Linkages, Variance Spillovers and Correlation Stability: Empirical Evidences of Financial Contagion

103 Pages Posted: 9 Oct 2007

See all articles by Monica Billio

Monica Billio

University of Venice - Department of Economics; Ca Foscari University of Venice - Dipartimento di Economia

Massimiliano Caporin

University of Padua - Department of Statistical Sciences

Date Written: 2007

Abstract

We propose a simultaneous equation system with GARCH errors to model the contemporaneous relations among Asian and American stock markets. On the estimated residuals, we evaluate the correlation matrix over rolling windows and introduce a correlation matrix distance, which allows both a graphical analysis and the development of a statistical test of correlation movements. Furthermore, we introduce a methodology that can be used for identifying turmoil periods on a data-driven basis. We employ the previous results in the analysis of the contagion issue between Asian and American stock markets. Our results shows some evidence of contagion and the proposed statistics identifies, on a data-driven basis, turmoil periods consistent with the ones currently assumed in the literature.

Keywords: Financial market contagion, Market linkages, Variance spillovers, Dynamic correlations, Rolling correlations, Transformed correlations

JEL Classification: G15, F3, C22, C32

Suggested Citation

Billio, Monica and Billio, Monica and Caporin, Massimiliano, Market Linkages, Variance Spillovers and Correlation Stability: Empirical Evidences of Financial Contagion (2007). University Ca' Foscari of Venice, Dept. of Economics Research Paper Series No. 18-07, Available at SSRN: https://ssrn.com/abstract=1020014 or http://dx.doi.org/10.2139/ssrn.1020014

Monica Billio (Contact Author)

University of Venice - Department of Economics ( email )

Fondamenta San Giobbe 873
Venezia 30121
Italy
+39 041 234 9170 (Phone)
+39 041 234 9176 (Fax)

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

HOME PAGE: http://www.unive.it/persone/billio

Massimiliano Caporin

University of Padua - Department of Statistical Sciences ( email )

Via Battisti, 241
Padova, 35121
Italy

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