In this paper, we test for contagion within the East Asian region, contagion being defined as a significant increase in the degree of comovement between stock returns in different countries. For this purpose, we use a parameter stability test, and, following [Rigobon, R., 2003a. On the measurement of the international propagation of shocks: is the transmission stable?, Journal of International Economics], we control for three types of bias, resulting from heteroscedasticity, endogeneity and omitted variable, respectively. The null of interdependence against the alternative of contagion is then tested as an overidentifying restriction. Unlike other studies, our approach is based on full-sample estimation, and hence avoids the power problems arising from the typical situation of a large “noncrisis” and a small “crisis” sample. We also select endogenously the breakpoints corresponding to the beginning of the contagion period, and finally we impose more plausible restrictions to identify the system. Our findings suggest the existence of contagion within the East Asian region, consistent with crisis-contingent theories of asset market linkages.

Testing for contagion: a conditional correlation analysis / Caporale, G.; Cipollini, Andrea; Spagnolo, N.. - In: JOURNAL OF EMPIRICAL FINANCE. - ISSN 0927-5398. - STAMPA. - vol. 12(3):(2005), pp. 476-489. [10.1016/j.jempfin.2004.02.005]

Testing for contagion: a conditional correlation analysis

CIPOLLINI, Andrea;
2005

Abstract

In this paper, we test for contagion within the East Asian region, contagion being defined as a significant increase in the degree of comovement between stock returns in different countries. For this purpose, we use a parameter stability test, and, following [Rigobon, R., 2003a. On the measurement of the international propagation of shocks: is the transmission stable?, Journal of International Economics], we control for three types of bias, resulting from heteroscedasticity, endogeneity and omitted variable, respectively. The null of interdependence against the alternative of contagion is then tested as an overidentifying restriction. Unlike other studies, our approach is based on full-sample estimation, and hence avoids the power problems arising from the typical situation of a large “noncrisis” and a small “crisis” sample. We also select endogenously the breakpoints corresponding to the beginning of the contagion period, and finally we impose more plausible restrictions to identify the system. Our findings suggest the existence of contagion within the East Asian region, consistent with crisis-contingent theories of asset market linkages.
2005
vol. 12(3)
476
489
Testing for contagion: a conditional correlation analysis / Caporale, G.; Cipollini, Andrea; Spagnolo, N.. - In: JOURNAL OF EMPIRICAL FINANCE. - ISSN 0927-5398. - STAMPA. - vol. 12(3):(2005), pp. 476-489. [10.1016/j.jempfin.2004.02.005]
Caporale, G.; Cipollini, Andrea; Spagnolo, N.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11380/618803
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