Measuring common cyclical features during financial turmoil: Evidence of interdependence not contagion |
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| Authors: | Bertrand Candelon Alain Hecq Willem FC Verschoor |
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| Institution: | aDepartment of Economics, Maastricht University, P.O. box 616, 6200 MD, Maastricht, The Netherlands;bDepartment of Quantitative Economics, Maastricht University, P.O. box 616, 6200 MD, Maastricht, The Netherlands;cDepartment of Finance, Maastricht University, P.O. box 616, 6200 MD, Maastricht, The Netherlands |
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| Abstract: | This paper develops a test of contagion in financial markets by considering a measure of co-movement based on the notion of common cycles to detect short-run co-movements between a set of time series. We apply our methodology to the international effects of the 1994 Mexican peso crisis and the 1997 Asian crisis. Our results can be interpreted as evidence of a high level of market co-movement during all states of the world and, therefore, question the hypothesis of shift-contagion in the transmission of financial shocks during the 1997 Asian crisis, and to a lesser extent, the 1994 Mexican crisis. |
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| Keywords: | Common cycles GARCH Robust tests Shocks Shift-contagion Co-movements |
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