A statistical procedure for testing financial contagion | Gardini | Statistica
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Abstract The aim of the paper is to provide an analysis of contagion through the measurement of the risk premia disequilibria dynamics. In order to discriminate among several disequilibrium situations we propose to test contagion on the basis of a two-step procedure: in the first step we estimate the preference parameters of the consumption-based asset pricing model CCAPM to control for fundamentals and to measure the equilibrium risk premia in different countries; in the second step we measure the differences among empirical risk premia and equilibrium risk premia in order to test cross-country disequilibrium situations due to contagion.
The model describes simultaneously the risk premia dynamics due to endogenous amplifications of volatility and to exogenous idiosyncratic shocks contagion , having controlled for fundamentals effects in the first step. Our approach allows us to achieve two goals: i to identify the disequilibria generated by irrational behaviours of the agents, which cause increasing in volatility that is not explained by the economic fundamentals but is endogenous to financial markets, and ii to assess the existence of contagion effect defined by exogenous shift in cross-country return correlations during crisis periods.
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Our results show evidence of contagion from the United States to United Kingdom, Japan, France, and Italy during the financial crisis which started in References F. Remember me. This book presents the Clarendon Lectures in Finance by one of the leading exponents of financial booms and crises. Hyun Song Shin's work has shed light on the recent global financial crisis and he has been a central figure in the policy debates.
Risk and Liquidity (Clarendon Lectures in Finance)
This book will appeal interest to students and academics across economics and finance, as well as policy makers, government offi This book presents the Clarendon Lectures in Finance by one of the leading exponents of financial booms and crises. This book will appeal interest to students and academics across economics and finance, as well as policy makers, government officials, and bankers who want to delve beneath the surface to grasp the underlying dynamics of the boom-bust cycle in a modern financial system -a system where banking and capital market developments have become inseparable.
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