Analysis of Contagion in Emerging Markets

Journal of Data Science 6(2008), 601-626

26 Pages Posted: 13 Mar 2007 Last revised: 19 Oct 2013

See all articles by Juliana de Paula

Juliana de Paula

Universidade Estadual de Campinas (UNICAMP)

Luiz Koodi Hotta

University of Campinas (UNICAMP) - Department of Statistics

Mauricio Zevallos

Universidade Estadual de Campinas (UNICAMP)

Date Written: 2007

Abstract

The spread of crises from one country to another, named “contagion”, has been one of the most debated issues in international finance in the last two decades. The presence of contagion can be detected by the increase in conditional correlation during the crisis period compared to the previous period. The paper presents a brief review of three of the most used techniques to estimate conditional correlation: exponential weighted moving average, multivariate GARCH models and factor analysis with stochastic volatility models. These methods are applied to analyze the contagion between the stock market of three major Latin American economies (Brazil, Mexico and Argentina) and two emerging markets (Malaysia and Russia) The data cover the period from 09/05/1995 to 12/30/2004, which includes several crises. In general, the three methods yielded similar results, but there is no general agreement. All the methods agreed that the contagion occurred mostly during the Asian crisis.

Keywords: Contagion, Conditional Correlation, Financial Crises

JEL Classification: C50, G10

Suggested Citation

de Paula, Juliana and Hotta, Luiz Koodi and Zevallos, Mauricio, Analysis of Contagion in Emerging Markets (2007). Journal of Data Science 6(2008), 601-626, Available at SSRN: https://ssrn.com/abstract=969835 or http://dx.doi.org/10.2139/ssrn.969835

Juliana De Paula

Universidade Estadual de Campinas (UNICAMP) ( email )

Cidade Universitária Zeferino Vaz - Barão
Geraldo
Campinas - SP, 13083-970
Brazil

Luiz Koodi Hotta (Contact Author)

University of Campinas (UNICAMP) - Department of Statistics ( email )

Campinas, São Paulo 13083-859
Brazil

Mauricio Zevallos

Universidade Estadual de Campinas (UNICAMP) ( email )

Rua Sérgio Buarque de Holanda, 651
Cidade Universitaria, Barao Geraldo
Campinas, Sao Paulo
Brazil

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