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Testing for Financial Spillovers in Calm and Turmoil Periods

32 Pages Posted: 9 May 2004  

Martin T. Bohl

University of Muenster

Dobromil Serwa

European University Viadrina Frankfurt (Oder) - Department of Economics

Jedrzej Pawel Bialkowski

University of Canterbury - Department of Economics and Finance

Abstract

In this paper, we investigate financial spillovers between capital markets during calm and turbulent times. We explicitly define financial spillovers and financial contagion in accordance to the economic literature and construct statistical models corresponding to these definitions in the Markov switching framework. Applying the new testing methodology based on transition matrices, we find that spillovers from the US capital market to the UK, Japanese, and German markets are significant independently of whether the latter markets are in the state of calm or distress. However, we reject the hypothesis of strong financial contagion from the US market to the other markets. These results are robust to the choice of the analyzed period.

Keywords: Financial spillovers, Markov switching models, capital markets, financial crisis

JEL Classification: F36, G12, G15

Suggested Citation

Bohl, Martin T. and Serwa, Dobromil and Bialkowski, Jedrzej Pawel, Testing for Financial Spillovers in Calm and Turmoil Periods. EFMA 2004 Basel Meetings Paper. Available at SSRN: https://ssrn.com/abstract=494262 or http://dx.doi.org/10.2139/ssrn.494262

Martin T. Bohl (Contact Author)

University of Muenster ( email )

Schlossplatz 2
D-48149 Muenster, D-48149
Germany

Dobromil Serwa

European University Viadrina Frankfurt (Oder) - Department of Economics ( email )

Grosse Scharrnstr. 59
D-15230 Frankfurt (Oder)
Germany
+49 335 55 34 2935 (Phone)

Jedrzej Pawel Bialkowski

University of Canterbury - Department of Economics and Finance ( email )

Private Bag 4800
Christchurch
New Zealand

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