Testing for financial spillovers in calm and turbulent periods |
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Institution: | 1. Faculty of Business, Auckland University of Technology, Auckland, New Zealand;2. Faculty of Economics, Westfälische Wilhelms University Münster, Münster, Germany;3. Research Department, National Bank of Poland, Warsaw, Poland |
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Abstract: | In this paper, we investigate financial spillovers between stock markets during calm and turbulent periods. We explicitly define financial spillovers and financial contagion in accordance with the literature and construct statistical models corresponding to these definitions in a Markov switching framework. Applying the new testing methodology based on transition matrices, we find that spillovers from the US stock market to the UK, Japanese and German markets are more frequent when the latter markets are in a crisis regime. However, we reject the hypothesis of strong financial contagion from the US to the other markets. |
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