Analysis of Contagion in Financial Markets Based on the Gradient Measurement of the Growth in Financial Markets and Conditional Copula Functions
20 Pages Posted: 18 Dec 2013
Date Written: December 16, 2013
We define contagion in financial markets as a significant increase in cross-market linkages after a shock to one country (or group of countries). Contagion occurs if cross-market co-movement increases significantly after the shock.
The main goal of this paper is to analyse changes in dependence between a chosen world stock market and the constructed synthetic index. Subsequently the research hypothesis will be verified: dependence between the synthetic stock market index and other stock markets is increasing in periods of a rapid decrease in value of stock market indexes. Positive verification of this hypothesis means that there is a contagion in financial markets.
Keywords: contagion in financial markets, synthetic measurement, conditional copula functions
JEL Classification: C43, C58, G100
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