Multivariate Contagion and Interdependence

33 Pages Posted: 23 Jan 2006 Last revised: 25 Jan 2009

See all articles by Dirk G. Baur

Dirk G. Baur

University of Western Australia - Business School; Financial Research Network (FIRN)

Renee Fry

Australian National University (ANU) - Department of Economics

Date Written: November 1, 2008

Abstract

This paper proposes a multivariate test to measure the statistical and economic significance of contagion through analysis of extreme unobserved common shocks. Contagious episodes are endogenously determined with no need, but the possibility, to specify the source country. Application to a panel of equity returns during the Asian crisis of 1997-98 finds that interdependencies are substantially more important than contagion. However, the periods of contagion evident show that it is short-lived, split between positive and negative movements and reverses quickly. In comparison to other Asian crisis countries, Hong Kong was the main driver of contagion in the Asian crisis. The proposed methodology and the empirical findings provide a more detailed picture of contagion than commonly applied tests.

Keywords: contagion, interdependence, common movements, panel data, fixed time effects, Asian crisis, equity markets, endogenous crisis period, asymmetries

JEL Classification: C10, C51, F36, G14

Suggested Citation

Baur, Dirk G. and Fry, Renee, Multivariate Contagion and Interdependence (November 1, 2008). Available at SSRN: https://ssrn.com/abstract=877725 or http://dx.doi.org/10.2139/ssrn.877725

Dirk G. Baur (Contact Author)

University of Western Australia - Business School ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Renee Fry

Australian National University (ANU) - Department of Economics ( email )

Canberra, Australian Capital Territory 2600
Australia

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