Endogenous Crisis Dating and Contagion Using Smooth Transition Structural GARCH

26 Pages Posted: 4 Dec 2012 Last revised: 10 Apr 2015

See all articles by Mardi H. Dungey

Mardi H. Dungey

University of Tasmania (deceased); Financial Research Network (FIRN) (deceased)

George Milunovich

Macquarie University - Department of Economics; Macquarie University, Macquarie Business School

Susan Thorp

The University of Sydney Business School

Minxian Yang

UNSW Australia Business School, School of Economics

Date Written: April 8, 2015

Abstract

Detecting contagion during financial crises requires the demarcation of crisis periods. We develop a method for endogenously dating both the start and finish of crises, along with measuring contagion effects. Identification is achieved by coupling smooth transition functions with structural GARCH. In an application to US equity, bond and REITs returns for 2001-2010, we identify four phases; a pre-crisis period to July 2007, two phases of crisis up to and following October 2008, and a post-crisis phase from mid-May 2009. We detect significant contagion during the crisis and find evidence that the post-crisis period has not returned to pre-crisis relations.

Keywords: Contagion, Structural GARCH, Global Financial Crisis

JEL Classification: G01, C51

Suggested Citation

Dungey, Mardi H. and Milunovich, George and Thorp, Susan and Yang, Minxian, Endogenous Crisis Dating and Contagion Using Smooth Transition Structural GARCH (April 8, 2015). FIRN Research Paper. Available at SSRN: https://ssrn.com/abstract=2184597 or http://dx.doi.org/10.2139/ssrn.2184597

Mardi H. Dungey (Contact Author)

University of Tasmania (deceased)

Financial Research Network (FIRN) (deceased)

George Milunovich

Macquarie University - Department of Economics ( email )

Sydney NSW 2109
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Susan Thorp

The University of Sydney Business School ( email )

Abercrombie Building
H70
The University Of Sydney, NSW 2006
Australia
0290366354 (Phone)

Minxian Yang

UNSW Australia Business School, School of Economics ( email )

School of Economics
The University of New South Wales
Sydney, NSW NSW 2052
Australia
93853353 (Phone)

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