This presentation is part of: G00-1 Topics in Financial Economics

Detecting Shift and Pure Contagion in East Asian Equity Markets

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.