Joint tests of contagion with applications |
| |
| Authors: | Renée Fry-McKibbin Vance L. Martin |
| |
| Affiliation: | 1. Centre for Applied Macroeconomic Analysis (CAMA), Canberra 0200, Australia;2. Crawford School of Public Policy, Australian National University, Acton ACT 0200, Australia;3. Department of Economics, The University of Melbourne, 111 Barry street, Parkville 3010, Australia |
| |
| 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. |
| |
| Keywords: | Coskewness Cokurtosis Covolatility Lagrange multiplier tests European financial crisis Equity markets |
|
|
