Detecting Financial Contagion Using a New Nonparametric Measure of Asymmetric Comovements

Abstract

This article proposes a new nonparametric test to detect financial contagion by using a Kendall's tau-based asymmetric measure of comovements between two time series. Simulation studies demonstrate the reasonable size performance and good power in finite sample of our test. An empirical application of our test on exchange rate markets before and after the COVID-19 pandemic reveals interesting insights about financial contagion.

Keywords: Asymmetric comovements, Contagion, Exchange rate, Nonparametric test