Thomas Flavin, PhD, Economics, National University of Ireland, Maynooth, Co. Kildare, Maynooth, 99999, Ireland and Ekaterini Panopoulou, Ph.D., Statistics & Insurance Science, University of Piraeus, 80 Karaoli & Dimitriou street, Piraeus, 18534, Greece.
We test for contagion between pairs of East Asian equity markets over the period 1990-2007. We develop an econometric methodology that allows us to test for both ‘shift’ and ‘pure’ contagion within a unified framework. Using both Hong Kong and Thailand as potential shock sources, we find strong evidence of both types of contagion. Therefore during episodes of high-volatility, equity returns are influenced by changes in the transmission of common shocks and additionally by the diffusion of idiosyncratic shocks through linkages which do not exist during normal times.