Contagion testing in frontier markets under alternative stressful S&P 500 market scenarios |
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| Institution: | 1. College of Business Administration, Northern Border University, Arar 91431, Saudi Arabia;2. Institut Supérieur de Gestion de Gabès, Gabès University, Gabès 6002, Tunisia;3. Faculty of Economics and Management of Tunis, Tunis el Manar University, Tunisia;4. ISIG Kairouan, University of Kairouan, Tunisia;5. LaREMFIQ Laboratory, University of Sousse, Tunisia;1. Department of Finance and Banking, Burdur Mehmet Akif Ersoy University, Turkey;2. Department of Business, Burdur Mehmet Akif Ersoy University, Turkey;3. Department of Finance and Banking, Burdur Mehmet Akif Ersoy University, Turkey;4. Department of Economics and Finance, Burdur Mehmet Akif Ersoy University, Turkey |
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| Abstract: | We use alternative approaches to identify stable and stressful scenarios in the S&P 500 market, to offer a new perspective for constructing contagion tests in recipient frontier markets vulnerable to disturbances from this source market. The S&P 500 market is decomposed into discrete conditions of: (1) tranquil versus turbulent volatility; (2) bull versus bear market phases; (3) normal periods versus asset bubbles and crashes. Based on these identified scenarios, we use various co-moment contagion tests to analyse the changing relationship between the S&P 500 market and major frontier markets in the Caribbean region that have prominent trade related exposure to the US. Our findings show that, outside of the events of the Great Recession, the Caribbean stock exchanges are largely independent of the S&P 500 market. |
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| Keywords: | Contagion Correlation Crisis S&P 500 Stock market Volatility |
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