The aim of the paper is to test for financial contagion by estimating a simultaneous equation model subject to structural breaks. For this purpose, we use the Maximum Overlapping Discrete Wavelet Transform, MODWT, to decompose four asset returns into different scale components (each associated with a given frequency range). The decomposition will enable us to obtain the moment conditions necessary to (over)identify a structural form model with a single dummy and the one with multiple dummies capturing shifts in the co-movement of asset returns occurring during periods of financial turmoil. A Montecarlo simulation exercise shows that test based on a single dummy structural form model has good size and power properties in detecting financial contagion. The empirical results for four East Asian stock markets show that, once we account for interdependence through an (unobservable) common factor, there is no evidence of contagion but only (limited) empirical support of hypersensitivity and extra-vulnerability during the 1997-1998 financial turbulence.
Cipollini, A., & LO CASCIO, I. (2010). Testing for contagion: a time-scale decomposition [Altro].
|Titolo:||Testing for contagion: a time-scale decomposition|
|Data di pubblicazione:||2010|
|Citazione:||Cipollini, A., & LO CASCIO, I. (2010). Testing for contagion: a time-scale decomposition [Altro].|
|Appare nelle tipologie:||9.1 Altro|