Testing for Asymmetric Financial Contagion: New Evidence from the Asian Crisis

The Journal of Economic Asymmetries, 10 (2013), 129–137

Posted: 6 Mar 2014

See all articles by Dimitris Kenourgios

Dimitris Kenourgios

National and Kapodistrian University of Athens - Department of Economics

Dimitrios Asteriou

Hellenic Open University

Aristeidis Samitas

University of the Aegean

Date Written: February 4, 2014

Abstract

This paper investigates financial contagion as an asymmetric propagation mechanism across both equity and foreign exchange markets. In order to provide a robust analysis of the contagion dynamics, we apply an asymmetric generalized dynamic conditional correlation (AG-DCC) model. This specification allows examining the presence of asymmetric responses in correlations to negative returns, focusing on four countries affected by a specific emerging-market crisis (Asian crisis in 1997-1998). We find that conditional correlations among stock (currency) markets increase significantly during the crisis period, supporting the presence of asymmetric responses to negative shocks and the contagion phenomenon. The results also support the regional nature of this crisis, which is also spread with a higher magnitude among equity rather than currency markets. This evidence has important implications for portfolio diversification strategies and the effectiveness of policy responses to prevent the spread of the crisis among countries.

Keywords: Contagion, Stock and currency markets, Asymmetric dynamic conditional correlation, Asian financial crisis

JEL Classification: F30, G15, C30

Suggested Citation

Kenourgios, Dimitris and Asteriou, Dimitrios and Samitas, Aristeidis, Testing for Asymmetric Financial Contagion: New Evidence from the Asian Crisis (February 4, 2014). The Journal of Economic Asymmetries, 10 (2013), 129–137, Available at SSRN: https://ssrn.com/abstract=2404908

Dimitris Kenourgios (Contact Author)

National and Kapodistrian University of Athens - Department of Economics ( email )

1, Sofokleous Str
Office 521
Athens, 10559
Greece
+30 210 3689449 (Phone)

Dimitrios Asteriou

Hellenic Open University ( email )

Bouboulinas 57-59
Patra, 26222
Greece

Aristeidis Samitas

University of the Aegean ( email )

8 Michalon str.
Chios
Greece

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