Testing for Financial Spillovers in Calm and Turmoil Periods
32 Pages Posted: 9 May 2004
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: Suggested Citation
Do you want regular updates from SSRN on Twitter?
Recommended Papers
-
No Contagion, Only Interdependence: Measuring Stock Market Co-Movements
By Kristin J. Forbes and Roberto Rigobon
-
Transmission of Volatility between Stock Markets
By Mervyn King and Sushil Wadhwani
-
Asymmetric Correlations of Equity Portfolios
By Joseph Chen and Andrew Ang
-
Correlations in Price Changes and Volatility Across International Stock Markets
By Yasushi Hamao, Ronald W. Masulis, ...
-
Volatiltiy and Links between National Stock Markets
By Mervyn King, Enrique Sentana, ...
-
A New Approach to Measuring Financial Contagion
By Kee-hong Bae, George Andrew Karolyi, ...
-
Why Do Markets Move Together? An Investigation of U.S.-Japan Stock Return Comovements Using Adrs
-
A New Approach to Measuring Financial Contagion
By Kee-hong Bae, George Andrew Karolyi, ...
-
By Wenling Lin, Robert F. Engle, ...