Evaluation of contagion or interdependence in the financial crises of Asia and Latin America, considering the macroeconomic fundamentals

Emerson Marçal, Pedro Valls Pereira, Diogenes Manoel Leiva Martin and Wilson Toshiro Nakamura

Applied Economics, 2011, vol. 43, issue 19, 2365-2379

Abstract: This article investigates the existence of contagion between countries on the basis of an analysis of returns for stock indices over the period 1994 to 2003. The econometrics methodology used is that of multivariate Generalized Autoregressive Conditional Heteroscedasticity (GARCH) family volatility models, particularly the Dynamic Conditional Correlation (DCC) models in the form proposed by Engle and Sheppard (2001). The returns were duly corrected for a series of country-specific fundamentals. The relevance of this procedure is highlighted in the literature by the work of Pesaran and Pick (2003). The results obtained in this article provide evidence favourable for the hypothesis of regional contagion in both Latin America and Asia. As a rule, contagion spread from the Asian crisis to Latin America, but not in the opposite direction.

Date: 2011
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Working Paper: Evaluation of contagion or interdependence in the financial crises of Asia and Latin America, considering the macroeconomic fundamentals (2009)
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DOI: 10.1080/00036840903194204

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