Dynamic Correlation Analysis of Financial Contagion: Evidence from Asian Countries
23 Pages Posted: 23 Nov 2008
Abstract
This paper reexamines Asian stock market contagion by applying a dynamic multivariate GARCH model to daily stock-return data in nine Asian countries and the United States during the period from 1996 to 2003. The empirical results find supportive evidence of a contagion effect. By analyzing the correlation-coefficient series, this paper identifies two phases of the Asian crisis. The first phase shows an increase in correlation (contagion) and the second phase shows continued high correlation (herding). Statistical analysis of the correlation coefficients shows shifts in the level as well as in the variance of the correlation coefficients during the crisis period, casting some doubt on the benefit of international portfolio diversification. This study finds that international rating agents play significant role in shaping the structure of dynamic correlations in the Asian markets.
Keywords: Financial contagion, Asian crises, Herding, Dynamic correlation coefficient, Sovereign rating
JEL Classification: F30, G15
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
No Contagion, Only Interdependence: Measuring Stock Market Co-Movements
By Kristin J. Forbes and Roberto Rigobon
-
Transmission of Volatility between Stock Markets
By Mervyn King and Sushil Wadhwani
-
Asymmetric Correlations of Equity Portfolios
By Joseph Chen and Andrew Ang
-
Correlations in Price Changes and Volatility Across International Stock Markets
By Yasushi Hamao, Ronald W. Masulis, ...
-
Volatiltiy and Links between National Stock Markets
By Mervyn King, Enrique Sentana, ...
-
A New Approach to Measuring Financial Contagion
By Kee-hong Bae, George Andrew Karolyi, ...
-
Why Do Markets Move Together? An Investigation of U.S.-Japan Stock Return Comovements Using Adrs
-
A New Approach to Measuring Financial Contagion
By Kee-hong Bae, George Andrew Karolyi, ...
-
By Wenling Lin, Robert F. Engle, ...