IDEAS home Printed from https://ideas.repec.org/a/eee/reveco/v20y2011i1p95-109.html
   My bibliography  Save this article

Markets contagion during financial crisis: A regime-switching approach

Author

Listed:
  • Guo, Feng
  • Chen, Carl R.
  • Huang, Ying Sophie

Abstract

Within a Markov regime-switching VAR framework, we investigate the contagion effects among the stock market, real estate market, credit default market, and energy market covering the most recent financial crisis period when markets experience regime shifts. The results demonstrate that the watershed of regimes occurs around the start of the subprime crisis in 2007, after which the "risky" regime dominates the evolution of market chaos. During the financial crisis, excluding their own shocks, stock market shock and oil price shock are the main driving forces behind the credit default market and stock market variations, respectively. The energy market also appears to be more responsive to the stock market movements than the shocks originating from housing and credit markets. However, the impacts from the credit default market on the real estate market are not significant as expected.

Suggested Citation

  • Guo, Feng & Chen, Carl R. & Huang, Ying Sophie, 2011. "Markets contagion during financial crisis: A regime-switching approach," International Review of Economics & Finance, Elsevier, vol. 20(1), pages 95-109, January.
    • Handle: RePEc:eee:reveco:v:20:y:2011:i:1:p:95-109
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1059-0560(10)00052-3
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Hamilton, James D., 1996. "This is what happened to the oil price-macroeconomy relationship," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 215-220, October.
    2. John Y. Campbell & Pierre Perron, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know about Unit Roots," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 141-220, National Bureau of Economic Research, Inc.
    3. Kostas Tsatsaronis & Haibin Zhu, 2004. "What drives housing price dynamics: cross-country evidence," BIS Quarterly Review, Bank for International Settlements, March.
    4. Francis A. Longstaff & Sanjay Mithal & Eric Neis, 2005. "Corporate Yield Spreads: Default Risk or Liquidity? New Evidence from the Credit Default Swap Market," Journal of Finance, American Finance Association, vol. 60(5), pages 2213-2253, October.
    5. Daniel C. Quan & Sheridan Titman, 1999. "Do Real Estate Prices and Stock Prices Move Together? An International Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(2), pages 183-207, June.
    6. Acharya, Viral V. & Pedersen, Lasse Heje, 2005. "Asset pricing with liquidity risk," Journal of Financial Economics, Elsevier, vol. 77(2), pages 375-410, August.
    7. Hooker, Mark A, 2002. "Are Oil Shocks Inflationary? Asymmetric and Nonlinear Specifications versus Changes in Regime," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 540-561, May.
    8. Mardi Dungey & Diana Zhumabekova, 2001. "Testing for contagion using correlations: some words of caution," Pacific Basin Working Paper Series 2001-09, Federal Reserve Bank of San Francisco.
    9. 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.
    10. Laura E. Kodres & Matthew Pritsker, 2002. "A Rational Expectations Model of Financial Contagion," Journal of Finance, American Finance Association, vol. 57(2), pages 769-799, April.
    11. Guo, Feng & Huang, Ying Sophie, 2010. "Does "hot money" drive China's real estate and stock markets?," International Review of Economics & Finance, Elsevier, vol. 19(3), pages 452-466, June.
    12. Ehrmann, Michael & Ellison, Martin & Valla, Natacha, 2003. "Regime-dependent impulse response functions in a Markov-switching vector autoregression model," Economics Letters, Elsevier, vol. 78(3), pages 295-299, March.
    13. McCulloch, J Huston, 1975. "The Tax-Adjusted Yield Curve," Journal of Finance, American Finance Association, vol. 30(3), pages 811-830, June.
    14. David C. Ling & Andy Naranjo, 1999. "The Integration of Commercial Real Estate Markets and Stock Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(3), pages 483-515, September.
    15. Nobuhiro Kiyotaki & John Moore, 2002. "Balance-Sheet Contagion," American Economic Review, American Economic Association, vol. 92(2), pages 46-50, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Guo, Feng & Huang, Ying Sophie, 2010. "Does "hot money" drive China's real estate and stock markets?," International Review of Economics & Finance, Elsevier, vol. 19(3), pages 452-466, June.
    2. Romero-Ávila, Diego & Omay, Tolga, 2022. "Convergence of per capita energy consumption around the world: New evidence from nonlinear panel unit root tests," Energy Economics, Elsevier, vol. 111(C).
    3. Ying Huang & Feng Guo, 2008. "Macro shocks and the Japanese stock market," Applied Financial Economics, Taylor & Francis Journals, vol. 18(17), pages 1391-1400.
    4. Martins, Luis F. & Gabriel, Vasco J., 2014. "Modelling long run comovements in equity markets: A flexible approach," Journal of Banking & Finance, Elsevier, vol. 47(C), pages 288-295.
    5. Tsai, I-Chun, 2015. "Dynamic information transfer in the United States housing and stock markets," The North American Journal of Economics and Finance, Elsevier, vol. 34(C), pages 215-230.
    6. Balcilar, Mehmet & Gupta, Rangan & Miller, Stephen M., 2015. "Regime switching model of US crude oil and stock market prices: 1859 to 2013," Energy Economics, Elsevier, vol. 49(C), pages 317-327.
    7. Matteo Manera & Alessandro Cologni, 2006. "The Asymmetric Effects of Oil Shocks on Output Growth: A Markov-Switching Analysis for the G-7 Countries," Working Papers 2006.29, Fondazione Eni Enrico Mattei.
    8. Shahrestani, Parnia & Rafei, Meysam, 2020. "The impact of oil price shocks on Tehran Stock Exchange returns: Application of the Markov switching vector autoregressive models," Resources Policy, Elsevier, vol. 65(C).
    9. Amjad Taha & Gulcay Tuna, 2023. "Oil Price and Composite Risk Exposure within International Capital Asset Pricing Model: A Case of Saudi Arabia and Turkey," Energies, MDPI, vol. 16(7), pages 1-18, March.
    10. Monica Billio & Mila Getmansky & Loriana Pelizzon, 2008. "Crises and Hedge Fund Risk," Yale School of Management Working Papers amz2561, Yale School of Management, revised 01 Oct 2009.
    11. Mehmet Balcilar & Reneé van Eyden & Josine Uwilingiye & Rangan Gupta, 2017. "The Impact of Oil Price on South African GDP Growth: A Bayesian Markov Switching-VAR Analysis," African Development Review, African Development Bank, vol. 29(2), pages 319-336, June.
    12. Chen, Na & Jin, Xiu, 2020. "Industry risk transmission channels and the spillover effects of specific determinants in China’s stock market: A spatial econometrics approach," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    13. Nneji, Ogonna & Brooks, Chris & Ward, Charles W.R., 2013. "House price dynamics and their reaction to macroeconomic changes," Economic Modelling, Elsevier, vol. 32(C), pages 172-178.
    14. Mardi Dungey & Renee Fry & Brenda Gonzalez-Hermosillo & Vance Martin, 2005. "Empirical modelling of contagion: a review of methodologies," Quantitative Finance, Taylor & Francis Journals, vol. 5(1), pages 9-24.
    15. Oleg Korenok & Stanislav Radchenko, 2006. "The role of permanent and transitory components in business cycle volatility moderation," Empirical Economics, Springer, vol. 31(1), pages 217-241, March.
    16. Gonzalez-Hermosillo Gonzalez, B.M., 2008. "Transmission of shocks across global financial markets : The role of contagion and investors' risk appetite," Other publications TiSEM d684f3c7-7ad8-4e93-88cf-a, Tilburg University, School of Economics and Management.
    17. Stefan Fiesel & Marliese Uhrig-Homburg, 2016. "Illiquidity Transmission in a Three-Country Framework: A Conditional Approach," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 17(3), pages 261-284, December.
    18. Amélie Charles & Olivier Darné & Zakaria Moussa, 2014. "The sensitivity of Fama-French factors to economic uncertainty," Working Papers hal-01015702, HAL.
    19. Syed Jawad Hussain Shahzad & Elie Bouri & Jose Arreola-Hernandez & David Roubaud & Stelios Bekiros, 2019. "Spillover across Eurozone credit market sectors and determinants," Applied Economics, Taylor & Francis Journals, vol. 51(59), pages 6333-6349, December.
    20. Acharya, Viral V. & Amihud, Yakov & Bharath, Sreedhar T., 2013. "Liquidity risk of corporate bond returns: conditional approach," Journal of Financial Economics, Elsevier, vol. 110(2), pages 358-386.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:reveco:v:20:y:2011:i:1:p:95-109. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620165 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.