Forbes and rigobon 2002 pdf file

The 1990s has been punctuated by a series of severe financial and currency crises. Empirical evidence on financial spillovers and contagion to. 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. Our contribution in this chapter is to identify the role of an important economic connection between. 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. Thus, we adopted argarcht type models to control the stylize features of financial asset returns. Caporale, cipollini, spagnolo 2005 focused on studying contagion compared to interdependence. Contagion effects of the us subprime crisis on developed. Besides its time dimension, the study of globalization has also an important spatial component. We perform the forbes and rigobon 2002 spillover test using daily bond yield data over the period 2005 to 2011. This is an open access document downloaded from orca, cardiff. Equity market contagion during the global financial crisis. This years conference discussed capital flows and global governance. Time varying volatility indexes and their determinants.

This is not surprising from a purely statistical perspective, see forbes and rigobon 2001 inter alia. When contagion is defined as a significant increase in market comovement after a shock. Forbes and roberto rigobon massachusetts institute of technology mit sloan school of management and massachusetts institute of technology mit sloan school of management. The mundellfleming lecture was delivered by guillermo calvo, chief economist. We refer to this definition as it is widely used in the literature. Commodities prices can present a comovement feature leading to herd behavior pindyck and rotemberg, 1990. There are many studies examining the existence of contagion effect of various crises on different. 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. Forbes k, rigobon r 2002 no contagion, only interdependence. Asset pricing, international finance and macroeconomics. Forbes and rigobons method of contagion analysis with.

She also was a member of the governors council of economic advisers for the state of. The dynamic evolution of stock market integration between. Forbes is a global media company, focusing on business, investing, technology, entrepreneurship, leadership, and lifestyle. 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. Dynamic conditional correlation analysis of stock market.

First, the csi 300 index fundamentally involves a continuousjump process, supporting the jump. However, consolidation may not mean that all shocks are transmitted to every place. 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 other over time, during the sample period from january 1995 until december 2012 using monthly data. Contagion is defined as a significant increase in market comovement after a shock to one country. Empirical evidence on financial spillovers and contagion. This correlationbased approach is then extended in rigobon 2000. It is worth noting that forbes and rigobon 2002 showed that correlation coefficients are conditional on market volatility. A regional analysis of markets uncertainty spillovers.

To detect jumps in unexpected returns, i use a percentile threshold for each countrys stock index. 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. Abstract we found the presence of contagion effects d. 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. Tlarket, only argentina, canada, mexico and japan exhibited. 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. 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. Forbes and roberto rigobon abstract heteroskedasticity biases tests for contagion based on correlation coefficients. Detecting shocks in the economic development dynamics of.

Taking model 1 as an example, we see that the total variability in sdln. The contagion versus interdependence controversy between. Markwat t, kole e, van dijk d 2009 contagion as a domino effect in. This figure graphs stock market indices for five countries around the time of the october 1997 crash in the hong kong market. Table 415 unit root test results for monthly series where y t denotes the index from math 101 at national cheng kung university. Therefore, following forbes and rigobon 2002 we distinguish convergence as interdependence from contagion. The main advantage of the dccmodel compared to other similar. Pier working paper 07002 university of pennsylvania. This research examines the timevarying conditional correlations to the daily stock index returns. Table 415 unit root test results for monthly series where y t. 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.

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. 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. Financial contagion simulation through modelling behavioural. Detecting shocks in the economic development dynamics of selected countries. Conceptual and empirical issues, begins by discussing the current imprecision and disagreement surrounding the term contagion. Forbes and rigobon 2002 described the current imprecision and disagreement surrounding the term contagion. Econometric model of market volatility in this paper, we used a quadrivariate mgarch model with structural changes in the variance. 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. Empirical studies have discussed whether the financialization process shows a herding pattern. In a similar spirit, for contagion between equity markets hedge funds, boyson et al. If the address matches an existing account you will receive an email with instructions to retrieve your username.

Our sample consists of the us as a crisis originating. Harvey duke university and national bureau of economic research angela ng hong kong university of science and technology. Forbes and rigobon 2000, ahelegbey, billio, and casarin 2014, and diebold and yilmaz 2014. Conclusions the findings of this study yield the following conclusions. Asymmetric jump beta estimation with implications for. 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.

Table 415 unit root test results for monthly series where. 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. We use a dynamic conditional correlation dcc multivariate garch model in order to capture potential contagion effects between us and major developed. In contagion studies it is common to compare data from di. It begins with a discussion of several conceptual issues involved in measuring these movements and how to test for contagion. If the inline pdf is not rendering correctly, you can download the pdf file here. Forbes and rigobon are both from the sloan school of management at the massachusetts institute of technology. 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. We used a quadrivariate version to introduce regional as well as overall effects of the american aggregate stock markets.

A comparison of global financial market recovery after the 2008 global financial crisis. Rodriguez 2006 finds the change of tail dependence is a warning sign for financial contagion. Quantile dependence between stock markets and its application. Markwat t, kole e, van dijk d 2009 contagion as a domino effect in global stock markets. The intensity of spillovers may of course vary over time, and the nature of any time. Empirical results show substantial evidence of significant.

Financial planning research journal griffith university. It also allows us to define contagion as a positive shift in the degree of comovement between asset returns. We use stock returns in masi, cac, dax, ftse and nasdaq as representatives of moroccan, french, german, british and u. The shocks stemming from us shocks did cause excessive impacts in other stock markets. All variables except central bank rates are used in logarithmic first differences, so that they are stationary and their coefficients comparable. Forbes and rigobon 2002 have defined the contagion as the propagation of shocks among markets in excess of the transmission explained by fundamentals. Analyzing in detail tables 1 and 2, we conclude that, although the all commodities base have higher persistence parameters. Contagion effect of financial crisis on oecd stock markets. 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. This is an open access document downloaded from orca. Kleimeier, lehnert and verschoor 2008 address this issue using the forbes and rigobon test and nd.

Measuring stock market comovements article pdf available in the journal of finance 575 august 1999 with 940 reads. The existent literature provides numerous definitions and statistical methods for analysis of contagion in the financial markets. Stock exchange industry consolidation is at work since many years and has recently accelerated through competition for order flows, agreements and mergers. Forbes and rigobon 2002 suggest the shock of gfc is shortlived and. Yang and bessler 2006 use vector autoregression analysis to explore the financial contagion pattern characters. Financial market contagion during the global financial crisis. This paper studies the spillover effects both within the bond markets for individual u. In this paper, we aim at the study of the contagion of the global financial crisis 20072009 on moroccan stock market. First, we find that between most markets for individual u.

Financial market contagion during the global financial. Our study focuses to examine whether contagion effects exist on moroccan stock market, during the current financial crisis. The third annual research conference of the international monetary fund took place in washington, dc, on november 7 and 8, 2002. This result contrasts with the no contagion finding reached by forbes and rigobon 2002. 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. Pier working paper 04028 university of pennsylvania. I rst explore whether bad contagion has predictive power for international stock returns using a paneldata regression setting. Speakers included scholars from universities and other research institutions as well as young researchers in the fund. Download fulltext pdf no contagion, only interdependence. Following forbes and rigobon 2002, we define contagion as a positive shift in the degree of comovement between asset returns. Contagion only interdependence from forbes and rigobon 2002.