Unobservable shocks as carriers of contagion

Dungey, M; Milunovich, G; Thorp, SJ

Unobservable shocks as carriers of contagion

Dungey, M Milunovich, G Thorp, SJ

Permalink

Publisher:: Elsevier Inc
Publication Type:: Journal Article
Citation:: Journal of Banking and Finance, 2010, 34 (5), pp. 1008 - 1021
Issue Date:: 2010-01

Open Access

Copyright Clearance Process

Recently Added
In Progress
Open Access

This item is open access.

Adobe PDF

Download full textAdobe PDF (407.77 kB)

View on publisher's site

View statistics

Full metadata record

Field	Value	Language
dc.contributor.author	Dungey, M	en_US
dc.contributor.author	Milunovich, G	en_US
dc.contributor.author	Thorp, SJ	en_US
dc.date.issued	2010-01	en_US
dc.identifier.citation	Journal of Banking and Finance, 2010, 34 (5), pp. 1008 - 1021	en_US
dc.identifier.issn	0378-4266	en_US
dc.identifier.uri	http://hdl.handle.net/10453/13920
dc.description.abstract	We propose an identified structural GARCH model to disentangle the dynamics of financial market crises. We distinguish between the hypersensitivity of a domestic market in crisis to news from foreign non-crisis markets, and the contagion imported to a tranquil domestic market from foreign crises. The model also enables us to connect unobserved structural shocks with their source markets using variance decompositions and to compare the size and dynamics of impulses during crises periods with tranquil period impulses. To illustrate, we apply the method to data from the 19971998 Asian financial crisis which consists of a complicated set of interacting crises. We find significant hypersensitivity and contagion between these markets but also show that links may strengthen or weaken. Impulse response functions for an equally-weighted equity portfolio show the increasing dominance of Korean and Hong Kong shocks during the crises and covariance responses demonstrate multiple layers of contagion effects.	en_US
dc.publisher	Elsevier Inc	en_US
dc.relation.ispartof	Journal of Banking and Finance	en_US
dc.relation.isbasedon	10.1016/j.jbankfin.2009.11.006	en_US
dc.rights	Elsevier required licence: © 2010 . This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/. The definitive publisher version is available online at https://doi.org/10.1016/j.jbankfin.2009.11.006	en_US
dc.subject.classification	Finance	en_US
dc.title	Unobservable shocks as carriers of contagion	en_US
dc.type	Journal Article
utslib.citation.volume	5	en_US
utslib.citation.volume	34	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
utslib.for	0102 Applied Mathematics	en_US
utslib.for	1401 Economic Theory	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Strength - CENSOC - Study of Choice
utslib.copyright.status	open_access
pubs.consider-herdc	true	en_US
pubs.issue	5	en_US
pubs.volume	34	en_US

Abstract:

We propose an identified structural GARCH model to disentangle the dynamics of financial market crises. We distinguish between the hypersensitivity of a domestic market in crisis to news from foreign non-crisis markets, and the contagion imported to a tranquil domestic market from foreign crises. The model also enables us to connect unobserved structural shocks with their source markets using variance decompositions and to compare the size and dynamics of impulses during crises periods with tranquil period impulses. To illustrate, we apply the method to data from the 19971998 Asian financial crisis which consists of a complicated set of interacting crises. We find significant hypersensitivity and contagion between these markets but also show that links may strengthen or weaken. Impulse response functions for an equally-weighted equity portfolio show the increasing dominance of Korean and Hong Kong shocks during the crises and covariance responses demonstrate multiple layers of contagion effects.

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/13920