Unravelling financial market linkages during crises

Dungey, Mardi; Martin, Vance L.

doi:10.1002/jae.936

Cited by 169 publications

(131 citation statements)

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“…However, it is a well known fact that threshold effects exist in financial markets (J. Bialkowski et al (2006), Dungey and Martin (2007), H. Kim et al (2009), Evans and McMillan (2009). To confirm the findings of previous studies as well as our own VAR study results, we conducted an asymmetric/threshold analysis utilizing the multivariate adaptive regressive spline (MARS) model.…”

Section: Var Results and Findings From Industry Specific Indexessupporting

confidence: 62%

“…Bialkowski et al (2006) tested for asymmetries in financial markets using a bivariate Markov switching framework for U.S., Japan, UK, and Germany during 1984-2003 and discovered transmission of returns were stronger during times of crisis. Dungey and Martin (2007) utilized a dynamic latent factor framework to examine the link between equity and currency markets during the East Asian financial crisis of 1997-98. They found both cross-market and cross-border influences were statistically significant during periods of crisis.…”

Section: Introductionmentioning

confidence: 99%

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Asymmetric Threshold Linkages of inter-Sector Activity in International Equity Markets

Ahn¹,

Lee²

2011

IJEF

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The inter-sector study shows index performance on a sector-by-sector basis was heavily impacted by the country which closed just prior to its own market's open as we expect from the broad index. This study also found the influence of a country's lagged price movements on its own market varied from one country to another and from sector-to-sector. The investigation into industry specific indexes by applying the Multivariate Adaptive Regression Spline (MARS) model allowed us to untangle the data and capture the asymmetric dynamics in international financial markets. The sector specific study results revealed the strong linkages when markets were excessively volatile and also identified the difference between the impact of positive and negative extreme price movements.

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Section: Var Results and Findings From Industry Specific Indexessupporting

confidence: 62%

Section: Introductionmentioning

confidence: 99%

Asymmetric Threshold Linkages of inter-Sector Activity in International Equity Markets

Ahn¹,

Lee²

2011

IJEF

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“…To avoid these drawbacks, some previous studies (Ang and Chen, 2002;Tastan, 2006;and Dungey and Martin, 2007), have relied on Multivariate-GARCH models with as an alternative to model the dependence between returns. Other studies (Ang and Bekaert, 2002;and Ang and Chen, 2002) consider Hamilton's regime-switching models as an alternative approach to model the dependence structure of returns.…”

Section: Introduction and Literature Reviewmentioning

confidence: 99%

Dependence Patterns Among Banking Sectors in Asia: A Copula Approach

Mensah¹,

Premaratne

2014

SSRN Journal

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The bitter experience of the subprime crisis of 2007, the Global Financial crisis of 2008, and the extremely slow and painful ensuing recovery, has raised systemic risk to the center stage of global economic discourses. The crisis has brought home the urgent need for a thorough assessment of the dependence and interaction between banking sectors, from which most of the trouble began. This study investigates patterns and trends in absolute and tail dependence over time using daily returns for banking sectors from 12 Asian economies during the period 2000-2012. Static and time-varying Copula models, Gaussian copula, Symmetrized Joe-Clayton copulas, are employed to study the tail co-movements among the selected markets. The paper assumes a skew-t distribution for the innovation process of the marginal models. The results of the marginal models suggest strong volatility persistence in all twelve markets. There is high persistence in the absolute dependence of among market pairs. The evidence from the empirical analysis suggests that the cross-sectional average copula correlations generally remain at moderate levels with slight upward trend for all twelve markets. Correlation among the banking sectors of the advanced Asian markets economies are generally higher compared with the Emerging markets economies. The tail dependence is asymmetric across most of the market pairs; tail dependence at the lower side of the joint distributions is mostly higher than tail dependence at the upper side of the joint distributions. The results show that tail dependence is not upward trending for most of the pairs examined. However, the tail co-movements show significant spikes in response to financial stress in the global economy, which implies that there could be joint crashes in the regional banking system during extreme negative events. The fact that the region has not been the epicenter for most of the crisis periods covered in this study, yet responds significantly, makes it necessary for adoption of policies that maximize resilience to shocks. The study concludes that time-varying copulas are best suited for modeling the dependence structure of the Asian banking sector indices compared with static copula.JEL Classification: C14, F36, G10

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“…Further, investigating the channels of contagion associated with global shocks, country shocks and idiosyncratic shocks, Dungey and Martin (2007) illustrates the present of both spillover effects and contagion, and that the former outweighs the latter. The influence of contagion channels varies in different crisis from 1998 to 2007 ( e.g.…”

Section: 2empirical Evidence On Financial Contagionmentioning

confidence: 99%

A Coexceedance Approach on Financial Contagion

2013

SSRN Journal

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ACKNOWLEDGEMENTSForemost, I would like to express my sincere gratitude to my supervisor, Lu Liu, for her guide and persistent support. Not only has she taken her time and patience to give me a number of valuable suggestions, but also showed me the most suitable approach to address the research questions. She has always kept track of my thesis to ensure that I was on the right progress.I am also indebted to Tuan-Minh Nguyen at Department of Mathematics, who has always offered me his enthusiastic assistance to better understand various statistical and mathematical issues. Dinh-Vinh Vo ABSTRACTThe paper sheds light on financial contagion within the Euro Area and Asia, and contagion from the Euro Area to Asia during two recent crises: the global financial crisis and European sovereign debt crisis. Applying the multinomial logit regression model, the paper investigates how the macro-finance variables affect the coincidence of extreme negative returns (coexceedances). In addition, I apply both original constant threshold i.e. 5%percentile of unconditional distribution of daily stock returns and Value-at-Risk to estimate extreme negative returns. These approaches offer a similar pattern. The empirical findings reveal that, in the Euro Area and Asia, the probability of the occurrence of coexceedances is strongly explained by the idiosyncratic risks: the changes in exchange rates, the regional stock market volatility, and global shocks: the changes in the U.S. long-term interest rates, the TED spread. The global volatility index is only significant to explain the likelihood of coexceedances in the Euro Area, not in Asia. These analyses lead to the conclusion that contagion in Asia is more important than in the Euro Area. Another important finding indicates the existence of contagion from the Euro Area to Asia. That is, the probability of coexceedances in Asia is predictable and depends on the number of joint occurrence of extreme return shocks in the Euro Area.

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Unravelling financial market linkages during crises

Cited by 169 publications

References 73 publications

Asymmetric Threshold Linkages of inter-Sector Activity in International Equity Markets

Asymmetric Threshold Linkages of inter-Sector Activity in International Equity Markets

Dependence Patterns Among Banking Sectors in Asia: A Copula Approach

A Coexceedance Approach on Financial Contagion

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