Tail Contagion: Were Vietnam and China Stock Markets Out of the US Mortgage Crisis?

22 Pages Posted: 20 Aug 2015

See all articles by Cuong Cao Nguyen

Cuong Cao Nguyen

Lincoln University (NZ) - Department of Accounting, Economics and Finance - Lincoln University NZ

Ishaq Bhatti

La Trobe University - School of Economics and Finance; Financial Research Network (FIRN)

Date Written: August 19, 2015

Abstract

The paper applies non-parametric methods of Chi-plots and Kendall (K)-plots and three different copula functions to empirically examine the tail dependence between the U.S. stock market and stock markets in Vietnam and China in order to test contagion effect after the U.S. subprime mortgage crisis. The results indicate the presence of left tail dependence before and after the crisis suggesting no change in dependence structure but stronger left tail dependence between the U.S. and Vietnam stock markets. Thus, the US and Vietnam stock markets are more prone to crashing than booming together. Between the U.S. and Shanghai stock markets, the results provide evidence of a left tail dependence before the crisis, but no evidence of tail dependence after the crisis indicating that the dependence structure between U.S. and Shanghai stock markets changed after the crisis. On the contrary, the findings show that the Shenzhen stock market is independent of the U.S. market in both before and after crisis periods which imply that an extreme event in the U.S. market is less likely to influence the Shenzhen stock market. This suggests that there is significant potential for risk diversification by investing in the Shenzhen market by U. S. investors after the financial crisis. The results have not been documented in the existing literature and provide a new insight into risk diversification between the stock markets.

Keywords: financial crisis, tail contagion, Vietnam, China

Suggested Citation

Nguyen, Cuong Cao and Bhatti, Ishaq, Tail Contagion: Were Vietnam and China Stock Markets Out of the US Mortgage Crisis? (August 19, 2015). 28th Australasian Finance and Banking Conference, Available at SSRN: https://ssrn.com/abstract=2647675 or http://dx.doi.org/10.2139/ssrn.2647675

Cuong Cao Nguyen (Contact Author)

Lincoln University (NZ) - Department of Accounting, Economics and Finance - Lincoln University NZ ( email )

New Zealand

Ishaq Bhatti

La Trobe University - School of Economics and Finance ( email )

Bundoora
Melbourne, 3086
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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