How to Estimate Spatial Contagion between Financial Markets

13 Pages Posted: 4 May 2005

See all articles by Brendan Bradley

Brendan Bradley

Acadian Asset Management Inc., USA

Murad S. Taqqu

Boston University - Department of Mathematics and Statistics

Abstract

A definition of contagion between financial markets based on local correlation was introduced in Bradley and Taqqu (2004) and a test for contagion was proposed. For the test to be implemented, local correlation must be estimated. This paper describes an estimation procedure based on nonparametric local polynomial regression. The procedure is illustrated on the US and French equity market data.

Keywords: Contagion, local correlation, correlation breakdown, crisis period

JEL Classification: C12, C14

Suggested Citation

Bradley, Brendan and Taqqu, Murad S., How to Estimate Spatial Contagion between Financial Markets. Available at SSRN: https://ssrn.com/abstract=714143

Brendan Bradley

Acadian Asset Management Inc., USA ( email )

Murad S. Taqqu (Contact Author)

Boston University - Department of Mathematics and Statistics ( email )

111 Cummington St.
Boston, MA 02215
United States
617-353-3022 (Phone)

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