Contagion across Central and Eastern European Stock Markets: a Dynamic Conditional Correlation Test
Economic literature suggests that contagion can occur because of trade links, both direct trade among countries and competition in third markets; similar initial conditions, whereby countries co-move insofar as they have similar macroeconomic (or other) characteristics; and financial linkages. While contagion can take many forms, this paper tests for stock market contagion during recent financial crises among CEE economies, comparing with some Western European countries, USA and Japan markets and test for the existence of contagion. It defines contagion as a significant increase in market co-movement after a shock to one country (or group of countries). We found that the correlations become more statistically significant as we go from the early stages of our sample towards the end of it. Our test takes into account the fact that the correlations can change from one day to another and it can provide powerful evidence in the support of the phenomenon of contagion.
Contagion across Central and Eastern European Stock Markets: a Dynamic Conditional Correlation Test.
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Contagion across Central and Eastern European Stock Markets: a Dynamic Conditional Correlation Test.
Autori:
Radu
Lupu
Rezumat
Economic literature suggests that contagion can occur because of trade links, both direct trade among countries and competition in third markets; similar initial conditions, whereby countries co-move insofar as they have similar macroeconomic (or other) characteristics; and financial linkages. While contagion can take many forms, this paper tests for stock market contagion during recent financial crises among CEE economies, comparing with some Western European countries, USA and Japan markets and test for the existence of contagion. It defines contagion as a significant increase in market co-movement after a shock to one country (or group of countries). We found that the correlations become more statistically significant as we go from the early stages of our sample towards the end of it. Our test takes into account the fact that the correlations can change from one day to another and it can provide powerful evidence in the support of the phenomenon of contagion.
Cuvinte cheie:
contagion, dynamic conditional correlations, GARCH models
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