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Markov Switching Models with Application to Contagion Effect Analysis in the Capital Markets

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  • Monika Kosko

    (The University of Computer Science and Economics in Olsztyn)

Abstract

This article presents the analysis of the contagion effect in the capital markets on the basis of the Markov switching models MS. The research is based on the return of the indexes. There is a distinction of two regimes with different volatility levels, the calm period and the crisis period. Then the analysis of the period’s occurrence was conducted, in reference to global financial crisis. Periods with a similar level of volatility occurrence in the same time. This analysis evidences the shocks transmission between financial markets, what confirms an occurrence of the contagion effect.

Suggested Citation

  • Monika Kosko, 2009. "Markov Switching Models with Application to Contagion Effect Analysis in the Capital Markets," Dynamic Econometric Models, Uniwersytet Mikolaja Kopernika, vol. 9, pages 73-80.
    • Handle: RePEc:cpn:umkdem:v:9:y:2009:p:73-80
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    References listed on IDEAS

    as
    1. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
    2. Edwards, Sebastian & Susmel, Raul, 2001. "Volatility dependence and contagion in emerging equity markets," Journal of Development Economics, Elsevier, vol. 66(2), pages 505-532, December.
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    Keywords

    Markov switching model; contagion effect.;

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