A Dynamic Conditional Correlation Analysis-Based Approach to Test Financial Contagion in Developing Markets

2014 ◽  
pp. 1-13 ◽  
Author(s):  
Shegorika Rajwani ◽  
Dilip Kumar
Keyword(s):  
Correlation Analysis ◽  
Financial Contagion ◽  
Conditional Correlation ◽  
Dynamic Conditional Correlation ◽  
Developing Markets

scholarly journals East Asian Financial Contagion under DCC-Garch

2009 ◽  
Author(s):  
J H Cho ◽  
Ali M. Parhizgari
Keyword(s):  
Hong Kong ◽  
Financial Crisis ◽  
East Asian ◽  
Equity Markets ◽  
Asian Financial Crisis ◽  
Financial Contagion ◽  
Conditional Correlation ◽  
Dynamic Conditional Correlation ◽  
Alternative Sources ◽  
Target Country

We consider the definition and measurement of contagion by analysing the 1997 East Asian financial crisis in the equity markets of eight countries using dynamic conditional correlation (DCC). Taking Thailand and Hong Kong as alternative sources of contagion, a total of fourteen source-target pairs is analyzed. We define contagion as the statistical break in the computed DCCs as measured by the shifts in their means and medians. In the DCC process, the parameters of each pair of source-target country contagion are allowed to vary and be dictated by the data. Contagion is tested using DCC means and medians difference tests. Our findings indicate the presence of contagion in the equity markets across all the fourteen pairs of source-target countries that are considered.  

scholarly journals Financial Contagion in EFA Markets in Crisis Periods: A Multivariate GARCH Dynamic Conditional Correlation Framework

2016 ◽  
Vol 21 (2) ◽  
pp. 121-151
Author(s):  
Mobeen Ur Rehman
Keyword(s):  
Financial Crises ◽  
Spillover Effects ◽  
Multivariate Garch ◽  
Financial Contagion ◽  
Time Varying ◽  
Conditional Correlation ◽  
Dynamic Conditional Correlation ◽  
Developed Markets ◽  
The Us ◽  
The 2008 Financial Crisis

This paper uses the multivariate GARCH dynamic conditional correlation framework proposed by Engle (2002) to investigate time-varying conditional correlation between developed markets and emerging and frontier Asian (EFA) markets. It employs monthly returns data for 2000–14 to capture the potential contagion in developed (the US, Europe and Japan) and EFA stock markets. A key finding is the increasing conditional correlation among EFA and developed markets, especially during the 2008 financial crisis. The study finds that, during periods of financial turmoil, EFA markets are exposed to shocks and spillover effects from developed markets along with a substantial shift in the regime of conditional correlation. This has important implications for investors interested in diversifying portfolios in EFA markets during financial crises.

scholarly journals POSSIBILITY OF RUSSIAN BONDSPOTFOLIO DIVERSIFICATION THROUGH THE USE OF ISLAMIC BONDS DURING THE COVID-19 PANDEMIC

2021 ◽  
pp. 201-209
Author(s):  
Галина Львовна Толкаченко ◽  
Павел Андреевич Карасев
Keyword(s):  
Correlation Analysis ◽  
Negative Correlation ◽  
Sovereign Debt ◽  
Corporate Bonds ◽  
Suitable Model ◽  
Investment Management ◽  
Conditional Correlation ◽  
Conditional Heteroscedasticity ◽  
Dynamic Conditional Correlation ◽  
Autoregressive Conditional Heteroscedasticity

Диверсификация - один из важнейших элементов в инвестиционной деятельности. Инвесторы пытаются найти баланс при формировании портфеля и его реструктуризации, стремясь одновременно максимизировать доходность и минимизировать риски. Целью данной работы является оценка возможности диверсификации портфеля облигаций российского рынка с помощью включения альтернативной традиционным облигациям формы - сукук в условиях пандемии COVID-19. Представленный в статье анализ такой возможности составляет определенный элемент новизны. В качестве наиболее подходящей модели для корреляционного анализ выбрана «DCC-MGARCH» модель (динамическая модель авторегрессионной условной гетероскедастичности). Результаты исследования показывают, что инвесторы, предпочитающие долговые суверенные ценные бумаги России и корпоративные облигации российских компаний, имеют возможность диверсифицировать портфель путем включения исламских облигаций. Данный вывод объясняется наличием отрицательной корреляционной связи между индексом сукук и индексами российских облигаций, как корпоративных, так и суверенных. Diversification is one of key elements in investment management. Investors strive to find a balance in the formation of a portfolio and its restructuring, simultaneously maximizing profitability and minimizing risks. The purpose of this work is to assess the possibility of diversification of the Russian bonds portfolioby including an alternative to traditional bonds-sukuk. The DCC-MGARCH model (Dynamic Conditional Correlation Multivariate General Autoregressive Conditional Heteroscedasticity Model) was chosen as the most suitable model for correlation analysis. The results of the study show that investors who prefer Russian sovereign debt securities or corporate bonds of Russian companies couldeffectively diversify their portfolio by including Islamic bonds during the COVID-19 pandemic. This conclusion is explained by the presence of a negative correlation between the Dow Jones Sukuk Index as a proxy for sukuk market and the indices of Russian bonds, both corporate and sovereign.

scholarly journals Contagion between Islamic and Conventional Banks in Malaysia: Empirical Investigation using a DCC-GARCH Model

2018 ◽  
Vol 31 (1) ◽  
pp. 167-178
Author(s):  
Monia Ben Latifa Monia Ben Latifa
Keyword(s):  
Empirical Investigation ◽  
Garch Model ◽  
Financial Contagion ◽  
Islamic Banks ◽  
Contagion Effect ◽  
Conditional Correlation ◽  
Dynamic Conditional Correlation ◽  
Conventional Banks ◽  
The Stability ◽  
Conventional And Islamic Banks

The purpose of this paper is to compare the stability, in terms of contagion, of conventional and Islamic banks in Malaysia. We use a DCC-GARCH model to estimate the dynamic conditional correlation (a measure of financial contagion) for a sample of one Islamic bank and eight conventional banks during the period from March 31, 2004 to March 18, 2014. From the empirical findings, we show that the conditional correlation between the returns of conventional and Islamic banks in Malaysia increased during the period of financial crisis. This finding implies the existence of a financial contagion effect between Islamic and conventional banks in Malaysia. Also, we find that financial contagion represents a major factor for the transmission of risk between Islamic and conventional banks.

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