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Contagion in International Stock and Currency Markets During Recent Crisis Episodes

Author

Listed:
  • Pami Dua

    (Department of Economics, Delhi School of Economics, University of Delhi, India)

  • Divya Tuteja

    (Department of Economics, Delhi School of Economics, University of Delhi, India)

Abstract
This paper investigates contagion across stock and currency markets of China, Eurozone, India, Japan and US during global financial crisis and Eurozone crisis. The crisis periods are selected using Markov-switching models for US and Eurozone markets. We, then, utilize the DCC-GARCH model to estimate conditional correlation among the assets and test for contagion/flight to quality effects during the crises. The results show significant contagion as well as flight to quality effects both across and within asset classes. We examine the impact of financial stress index on the correlation across markets and find that portfolio diversification benefits for equity markets may be non-existent.

Suggested Citation

  • Pami Dua & Divya Tuteja, 2016. "Contagion in International Stock and Currency Markets During Recent Crisis Episodes," Working papers 258, Centre for Development Economics, Delhi School of Economics.
    • Handle: RePEc:cde:cdewps:258
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    More about this item

    Keywords

    Financial contagion; Global Financial Crisis; Eurozone Crisis; Dynamic Conditional Correlation; Markov Switching; Financial Stress;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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