Showing papers by "Mardi Dungey published in 2005"

Empirical Modelling of Contagion: A Review of Methodologies

Abstract: The existing literature promotes a number of alternative methods to test for the presence of contagion during Þnancial market crises. This paper reviews those methods, and shows how they are related in a uniÞed framework. A number of extensions are also suggested which allow for multivarite testing, endogeneity issues and structural breaks.

Identifying International Financial Contagion Progress and Challenges

Abstract: This book reviews the state-of-the-art of the literature on international financial contagion. The individual contributions bridge the gap between econometric theory and evidence, while the comprehensive range of financial market and country regions under consideration highlights the future challenges facing econometricians, international policymakers and financial practitioners.

Sampling Properties of Contagion Tests

Abstract: The finite sample properties of recent tests of contagion are investigated using a range of Monte Carlo experiments. Some variations of these tests are also investigated to correct for size distortions and weak instrument problems. The finite sample results show that the Forbes-Rigobon and Pesaran-Pick tests are conservative tests, while the Favero-Giavazzi and Bae-Karolyi-Stulz tests are oversized. Two proposed variants of the Forbes and Rigobon test are shown to improve upon the sampling properties of this test. The change in the correlation test is shown to be a non-monotonic function of the strength of contagion resulting in non-monotonic power functions.

A comparison of alternative tests of contagion with applications

Abstract: A common characteristic of asset markets during periods of crisis is that asset returns exhibit greater volatility than they do during noncrisis peri­ ods. One suggested mechanism to account for the increased volatility is transmissions due to contagion, and a number of empirical tests have been developed to try to identify this effect. Forming a consensus on the empirical evidence for contagion in the exist­ ing literature is complicated by applications that differ by methodology, common factor specification, sample period selection, and asset market choice; see, for example, the overviews in Dornbusch, Park, and Claessens (2000) and Pericoli and Sbracia (2003). This chapter investigates these issues by making a comparison of four tests of contagion applied to common data sets and sample periods for three specific incidences of crisis in financial markets. The tests examined are the !a,t�!lJfaftor_model of Dungei.Ern. Gonzalez-Hermosillo, and Martin (2002, -2005; the DFGM test), the correla­ tion approach of Forbes and Rigobon (2002; the FR test), tl:!�_ !!1:1!11my_: variab�pproach_qf !'

The us treasury market in august 1998: untangling the effects og hong kong and russia with high frequency data

Abstract: The second half of AUgust 1998 was dominated by two events. From 14 to 28 August the Hong Kong Monetary Authority (HKMA) intervened in the Hong Kong equity markets to prevent a speculative double play against their currency board. On 17 August Russia announced its default on sovereign bonds. This paper demonstrates that the HKMA interventions had a substantial impact on the outcomes for US Treasury markets during this period. Using a careful analysis of high frequency bond market data both events are shown to intersect in the US Treasury market, despite having originated from seemingly unrelated shocks. On this evidence the shocks emanating from Hong Kong were important for the US Treasury market. The lesson for policy makers is that major markets play an important role in transmitting and absorbing the effects of unrelated shocks.

Shocks And Systemic Influences: Contagion In Global Equity Markets In 1998

Abstract: The transmission of the financial crises in 1998 through international equity markets is estimated through a multi-factor model of financial markets specifically allowing for contagion effects. The application measures the strength of contagion emanating from the Russia crisis of 1998, and the LTCM near collapse, using a panel of 10 emerging and developed financial markets. Pre and post default periods for Russia are distinguished. The results show that contagion is significant and widespread from both crises, although the LTCM crisis has more impact on developed than emerging markets. Consistent with the existing literature, regional effects are found to be strong during financial crises. Asian markets are found to be relatively immune from contagion, perhaps reflecting the effect of their own recent crisis.

A Web of Shocks: Crises Across Asian Real Estate Markets

Abstract: The behavior of real estate markets during the 1997-1998 financial crisis in Asian economies has received little attention despite the extensive research on other asset markets over this time. This paper examines the transmission of shocks across national real estate markets prior to and during the Asian crisis using a multivariate latent factor framework. The results reveal that diversification opportunities prior to the crises are much reduced during the crisis. A comparison with regional equity markets shows that the transmission of shocks differs across the real estate and equity markets, providing evidence that investment in multiple asset classes provides some protection from large market downturns.

Discussion of 'Assessing the Sources of Changes in the Volatility of Real Growth'

Abstract: This is a particularly interesting paper in that it attempts to extend the recent analysis of observed declines in output volatility in a number of individual countries to a more generalised framework There is, as always, more work to do before the question of whether changes in output growth volatility can be viewed as due to global or country-specifi c changes I want to structure my remarks around two broad points The fi rst is to go over some of the existing ground on whether the fall in volatility is due to either real changes in the economy, or to the effects of smaller shocks (or luck, as it is sometimes denoted in the literature) Much of this ground is already covered in Stock and Watson (2002) The second point relates to the attempt to analyse this question in a multi-country framework, as opposed to the usual unilateral approach that is evident in the previous literature and is generally based around the US experience Finally, I make some concluding remarks and suggestions for future directions with this line of research