Article ID Journal Published Year Pages File Type
5053291 Economic Modelling 2016 13 Pages PDF
Abstract

•We test for contagion/flight to quality effects in international currencies and equities•We examine conditional correlation dynamics across the stable and crisis phases of the two crises.•The results indicate contagion and flight to quality effects both across and within asset classes.•We find evidence that portfolio diversification benefits for equity markets may be non-existent.•There may be avenues for portfolio diversification across asset classes during crisis episodes.

This paper investigates contagion across stock and currency markets of China, Eurozone, India, Japan and US during global financial crisis and Eurozone crisis. The crisis periods are selected using Markov-switching models for US and Eurozone markets. We, then, utilize the DCC-GARCH model to estimate conditional correlation among the assets and test for contagion/flight to quality effects during the crises. The results show significant contagion as well as flight to quality effects both across and within asset classes. We examine the impact of financial stress index on the correlation across markets and find that portfolio diversification benefits for equity markets may be non-existent.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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