Nevertheless, the gfc has changed the way in which financial market linkages are viewed by market participants, academic researchers, the media and the general public as a whole. She also was a member of the governors council of economic advisers for the state of. Analyzing herding behavior in commodities markets an. Forbes and rigobon 2002 have defined the contagion as the propagation of shocks among markets in excess of the transmission explained by fundamentals. We use stock returns in masi, cac, dax, ftse and nasdaq as representatives of moroccan, french, german, british and u. Markwat t, kole e, van dijk d 2009 contagion as a domino effect in.
In this paper, we aim at the study of the contagion of the global financial crisis 20072009 on moroccan stock market. Empirical evidence on financial spillovers and contagion to. Kim in 1993 and forbes and rigobon in 2002 to more sophisticated models like multivariate cointegration techniques in combination with the allied concept of error. Empirical results show substantial evidence of significant. There are many studies examining the existence of contagion effect of various crises on different. Abstract we found the presence of contagion effects d.
Contagion effect of financial crisis on oecd stock markets. The 1990s has been punctuated by a series of severe financial and currency crises. Equity market contagion during the global financial crisis. It also allows us to define contagion as a positive shift in the degree of comovement between asset returns. Caporale, cipollini, spagnolo 2005 focused on studying contagion compared to interdependence. This correlationbased approach is then extended in rigobon 2000. Following forbes and rigobon 2002, we define contagion as a positive shift in the degree of comovement between asset returns. Forbes and rigobons method of contagion analysis with. Financial contagion simulation through modelling behavioural. We refer to this definition as it is widely used in the literature.
A comparison of global financial market recovery after the 2008 global financial crisis. The dynamic evolution of stock market integration between. If the address matches an existing account you will receive an email with instructions to retrieve your username. Quantile dependence between stock markets and its application. It is worth noting that forbes and rigobon 2002 showed that correlation coefficients are conditional on market volatility. The third annual research conference of the international monetary fund took place in washington, dc, on november 7 and 8, 2002. Download fulltext pdf no contagion, only interdependence. This is an open access document downloaded from orca, cardiff. A comparison of global financial market recovery after the. We use a dynamic conditional correlation dcc multivariate garch model in order to capture potential contagion effects between us and major developed and emerging stock markets during the 20072010 major financial crisis. Commodities prices can present a comovement feature leading to herd behavior pindyck and rotemberg, 1990. However, as shown by forbes and rigobon 2002, these results need to be carefully interpreted when the overall level of volatility is also changing through time. Empirical studies have discussed whether the financialization process shows a herding pattern. Contagion is defined as a significant increase in market comovement after a shock to one country.
Analyzing in detail tables 1 and 2, we conclude that, although the all commodities base have higher persistence parameters. When contagion is defined as a significant increase in market comovement after a shock. Additionally, a copula model or a combination of a copula and an existing multivariate model has been used to investigate dependence between nancial markets garcia and tsafack 2011, lee and long 2009, and rodriguez 2007, among others. This years conference discussed capital flows and global governance. This paper studies the spillover effects both within the bond markets for individual u. Markwat t, kole e, van dijk d 2009 contagion as a domino effect in global stock markets. Forbes and rigobon 2002 suggest the shock of gfc is shortlived and. Our study focuses to examine whether contagion effects exist on moroccan stock market, during the current financial crisis. Issue 1 besides the sector level diversification, scholars also focus on how a global financial crisis gfc will affect diversification, as some scholars found that the correlation did not hold constant during the crisis.
This result contrasts with the no contagion finding reached by forbes and rigobon 2002. This is not surprising from a purely statistical perspective, see forbes and rigobon 2001 inter alia. Let 1 i i i t t t y cds cds, where i t cds is the cds spread of economy i at the tth week for i cn, hk, jp, kr. If the inline pdf is not rendering correctly, you can download the pdf file here. Time varying volatility indexes and their determinants. Forbes is a global media company, focusing on business, investing, technology, entrepreneurship, leadership, and lifestyle. First, we find that between most markets for individual u. The existent literature provides numerous definitions and statistical methods for analysis of contagion in the financial markets. Contagion only interdependence from forbes and rigobon 2002. The intensity of spillovers may of course vary over time, and the nature of any time. Stock exchange industry consolidation is at work since many years and has recently accelerated through competition for order flows, agreements and mergers. A regional analysis of markets uncertainty spillovers. This research examines the timevarying conditional correlations to the daily stock index returns.
This is an open access document downloaded from orca. However, consolidation may not mean that all shocks are transmitted to every place. All variables except central bank rates are used in logarithmic first differences, so that they are stationary and their coefficients comparable. Against this background, we propose a simple quantitative measure of such interdependence, which we call a spillover index, and associated tools that we call spillover tables and spillover plots. Rodriguez 2006 finds the change of tail dependence is a warning sign for financial contagion. From 2003 to 2005 forbes served as a member of the white houses council of economic advisers and from 2001 2002 she was a deputy assistant secretary of quantitative policy analysis, latin american and caribbean nations in the u. Asymmetric jump beta estimation with implications for. Financial market contagion during the global financial crisis. Thus, we adopted argarcht type models to control the stylize features of financial asset returns. Kleimeier, lehnert and verschoor 2008 address this issue using the forbes and rigobon test and nd. Conclusions the findings of this study yield the following conclusions.
Forbes and rigobon 2002 use a two day moving average and dungey et al 2005 lag north american markets by one day when comparing with asian markets. Contagion effects of the us subprime crisis on developed. Yang and bessler 2006 use vector autoregression analysis to explore the financial contagion pattern characters. Pier working paper 04028 university of pennsylvania.
It begins with a discussion of several conceptual issues involved in measuring these movements and how to test for contagion. To detect jumps in unexpected returns, i use a percentile threshold for each countrys stock index. Stock market indices during the 1997 hong kong crash. Forbes and rigobon 2002 described the current imprecision and disagreement surrounding the term contagion. The definition of shift contagion of forbes and rigobon 2001 and their adjusted correlation analysis forbes and rigobon, 2002 have gained a lot of attention but the later faces the problem of ad hoc determination of the crisis periods and the issue of volatility. Speakers included scholars from universities and other research institutions as well as young researchers in the fund. Tlarket, only argentina, canada, mexico and japan exhibited. Forbes and rigobon 2002 defined contagion as conditional correlation on crisis while defined interdependence as unconditional correlation formed between international equity markets. In contagion studies it is common to compare data from di. Forbes and rigobon 2002 examine stock market interdependence and contagion effects following shocks from the 1987 us market crash, the 1994 mexican devaluation and the 1997 asian crisis.
Pier working paper 07002 university of pennsylvania. Taking model 1 as an example, we see that the total variability in sdln. Financial market contagion during the global financial. Forbes and rigobon 2000, ahelegbey, billio, and casarin 2014, and diebold and yilmaz 2014.
Conceptual and empirical issues, begins by discussing the current imprecision and disagreement surrounding the term contagion. First, the csi 300 index fundamentally involves a continuousjump process, supporting the jump. Financial planning research journal griffith university. Therefore, following forbes and rigobon 2002 we distinguish convergence as interdependence from contagion. Table 415 unit root test results for monthly series where. This figure graphs stock market indices for five countries around the time of the october 1997 crash in the hong kong market. Empirical evidence on financial spillovers and contagion. We use a dynamic conditional correlation dcc multivariate garch model in order to capture potential contagion effects between us and major developed. Forbes and rigobon are both from the sloan school of management at the massachusetts institute of technology.
Dynamic conditional correlation analysis of stock market. Asymmetric jump beta estimation with implications for portfolio risk managementi vitali alexeeva,b, giovanni urgac,d, wenying yaoe,b afinance discipline group, uts business school, university of technology sydney, sydney nsw 2007, australia btasmanian school of business and economics, university of tasmania, hobart, tasmania 7001, australia ccentre for econometric analysis, faculty of. Measuring stock market comovements article pdf available in the journal of finance 575 august 1999 with 940 reads. Forbes and roberto rigobon massachusetts institute of technology mit sloan school of management and massachusetts institute of technology mit sloan school of management. Our sample consists of the us as a crisis originating. It proposes a concrete definition, a significant increase in crossmarket linkages after a shock, and suggests using the term interdependence in order to differentiate this explicit definition from the existing literature. The shocks stemming from us shocks did cause excessive impacts in other stock markets. We used a quadrivariate version to introduce regional as well as overall effects of the american aggregate stock markets. I rst explore whether bad contagion has predictive power for international stock returns using a paneldata regression setting. Table 415 unit root test results for monthly series where y t. The main advantage of the dccmodel compared to other similar.
Harvey duke university and national bureau of economic research angela ng hong kong university of science and technology. Garch model introduced by engle 2002 in order to examine the extent to which the stock markets in china, japan and south korea have become integrated with each. Detecting shocks in the economic development dynamics of. Detecting shocks in the economic development dynamics of selected countries. However, forbes and rigobon 2002 show theoretically that correlation is biased upwards in periods of high volatility and can give a misleading picture of actual market dependencies. As discussed by loretan and english 2000 and forbes and rigobon 2002, the correlation of two random variables a and b, conditional on a being larger in magnitude than usual, is larger than the unconditional correlation of a and b. In a similar spirit, for contagion between equity markets hedge funds, boyson et al. Forbes k, rigobon r 2002 no contagion, only interdependence. In this paper, we make systemwide inference on a large dimensional network by simultaneously considering all of the possible linkages among institutions on the basis of an underlying undirected graphical model. Asset pricing, international finance and macroeconomics. Econometric model of market volatility in this paper, we used a quadrivariate mgarch model with structural changes in the variance. Forbes and roberto rigobon abstract heteroskedasticity biases tests for contagion based on correlation coefficients. Besides its time dimension, the study of globalization has also an important spatial component. Our contribution in this chapter is to identify the role of an important economic connection between.
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