Measuring Financial Contagion: A Copula Approach

Posted: 19 Nov 2007

Abstract

This paper models dependence with switching - parameter copulas to study financial contagion. Using daily returns from five East Asian stock indices during the Asian crisis, and from four Latin American stock indices during the Mexican crisis, it finds evidence of changing dependence during periods of turmoil. Increased tail dependence and asymmetry characterize the Asian countries, while symmetry and tail independence describe the Latin American case. Structural breaks in tail dependence are a dimension of the contagion phenomenon. Therefore, the rejection of the correlation breakdown hypothesis should not be considered, without further investigation, as evidence of a stable dependence structure.

Keywords: Financial Crises, Contagion

JEL Classification: G100, F3

Suggested Citation

Rodriguez, Juan Carlos, Measuring Financial Contagion: A Copula Approach. AFA 2004 San Diego Meetings, Forthcoming; Journal of Empirical Finance, Vol. 14, No. 3, 2007. Available at SSRN: https://ssrn.com/abstract=1031063

Juan Carlos Rodriguez (Contact Author)

Tilburg University and CentER ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 3262 (Phone)
+31 13 466 2875 (Fax)

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