Spatial contagion in the subprime crisis context: Adjusted correlation versus local correlation approaches |
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| Institution: | 1. LAMIDED, University of Sousse, Abdlaaziz il Behi Street, Bp 763, 4000, Sousse, Tunisia;2. Léonard de Vinci Pôle Universitaire, Research Center, 92916, Paris La Défense (France) and IRG, University of Paris-Est, IRG, France;1. Additional Commissioner of Taxes, National Board of Revenue of Bangladesh, Bangladesh;2. Department of Economics, Monash University, Melbourne, VIC, 3800, Australia;1. Economics Department, University of Girona, Carrer de la Universitat, 10. Campus de Montilivi, 17003 Girona, Spain;2. Applied Economics Department, Autonomous University of Barcelona, 08193, Bellaterra, Barcelona, Spain;1. Department of Economics, Business and Finance, Mutah University, Karak, Jordan;2. Department of Economic and Statistics Cognetti De Martiis, University of Turin, Department of Economics and Finance, Brunel University London, Lungo Dora Siena 100A, Turin, Italy;1. MEMOTEF Department, Sapienza University of Rome, Italy;2. Italian National Institute of Statistics, Italy;3. Department of Economics and Law, Sapienza University of Rome, Italy;4. Council of the Experts, Italian Ministry of Economy and Finance, Italy;5. European School of Political Economy, Luiss, Rome, Italy;6. Sogei SpA, Italy;7. Department of the Treasury, Italian Ministry of Economy and Finance, Italy;1. School of Economics, Huazhong University of Science and Technology, 1037# Luoyu Road, Wuhan, Hubei, 430074, China;2. School of Accounting, Zhongnan University of Economics and Law, 182# Nanhu Avenue, Wuhan, Hubei, 430073, China |
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| Abstract: | This paper investigates the influence of the spatial dimension on financial contagion in the subprime crisis based on adjusted and local correlation measures. Daily series of stock indexes of American and Asian countries are used from January 1, 2003, to December 30, 2011. We consider two groups of countries: the first group includes the United States and countries that are geographically close: Brazil, Argentina, Mexico, and Canada. The second group includes countries that are geographically distant from the United States: Hong Kong, India, Australia, Indonesia, Malaysia, South Korea, China, and Singapore. The results show that simple and adjusted correlations are not enough to explain the spatial effect of contagion. Using local correlations and polynomial regressions, the results show the existence of spatial contagion between the United States and all countries in the American region. As for countries that are geographically distant from the United States, we prove the existence of spatial contagion between only some groups of countries (United States/India, United States/Australia, United States/Indonesia, United States/Malaysia, United States/China). These results have international diversification, and within-industry implications. |
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| Keywords: | Contagion Adjusted correlation Local correlation Spatial effect Polynomial local regression G010 C1 C14 C58 |
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