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Joint Tests of Contagion with Applications to Financial Crises

CAMA Working Paper No. 23/2017

42 Pages Posted: 27 Mar 2017

See all articles by Renee Fry-McKibbin

Renee Fry-McKibbin

Australian National University (ANU) - Crawford School of Public Policy; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA), Crawford School of Public Policy

Cody Hsiao

Macao University of Science and Technology (MUST) - School of Business

Vance L. Martin

University of Melbourne - Department of Economics; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Multiple version iconThere are 2 versions of this paper

Date Written: March 26, 2017

Abstract

Joint tests of contagion are derived which are designed to have power where contagion operates simultaneously through coskewness, cokurtosis and covolatility. Finite sample properties of the new tests are evaluated and compared with existing tests of contagion that focus on a single channel. Applying the tests to daily Eurozone equity returns from 2005 to 2014 shows that contagion operates through higher order moment channels during the GFC and the European debt crisis, which are not necessarily detected by traditional tests based on correlations.

Keywords: Coskewness, Cokurtosis, Covolatility, Lagrange multiplier tests, European debt crisis, equity markets

JEL Classification: C1, F3

Suggested Citation

Fry-McKibbin, Renee and Hsiao, Cody and Martin, Vance L., Joint Tests of Contagion with Applications to Financial Crises (March 26, 2017). CAMA Working Paper No. 23/2017 , Available at SSRN: https://ssrn.com/abstract=2941178 or http://dx.doi.org/10.2139/ssrn.2941178

Renee Fry-McKibbin (Contact Author)

Australian National University (ANU) - Crawford School of Public Policy ( email )

7 Liversidge Street
Lennox Crossing
Canberra, ACT 0200
Australia

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA), Crawford School of Public Policy ( email )

Canberra, Australian Capital Territory 0200
Australia

Cody Hsiao

Macao University of Science and Technology (MUST) - School of Business ( email )

Avenida Wai Long
Taipa
Macau

Vance L. Martin

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

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