Joint tests of contagion with applications

Renée Fry-McKibbin, Cody Yu Ling Hsiao, Vance L. Martin

Research output: Contribution to journalArticlepeer-review

29 Citations (Scopus)

Abstract

Joint tests of contagion are derived which are designed to have power where contagion operates simultaneously through coskewness, cokurtosis and covolatility. Finite sample properties of the new tests are evaluated and compared with existing tests of contagion that focus on a single channel. Applying the tests to daily euro zone equity returns from 2005 to 2014 shows that contagion operated mainly through higher order moment channels during the GFC and the European debt crisis, which were not necessarily detected by traditional tests based on correlations. The empirical results have important implications for pricing risk and constructing well diversified portfolios.

Original languageEnglish
Pages (from-to)473-490
Number of pages18
JournalQuantitative Finance
Volume19
Issue number3
DOIs
Publication statusPublished - 4 Mar 2019
Externally publishedYes

Keywords

  • Cokurtosis
  • Coskewness
  • Covolatility
  • Equity markets
  • European financial crisis
  • Lagrange multiplier tests

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