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Changing vulnerability in Asia: contagion and spillovers

Author

Listed:
  • Moses Kangogo

    (University of Tasmania)

  • Mardi Dungey

    (University of Tasmania)

  • Vladimir Volkov

    (University of Tasmania)

Abstract

An increasing involvement of the Asian market in the global context plays a fundamental role in spreading shocks across the financial system. This paper examines the extent of vulnerability across Asian equity markets and the United States (US) equity market by distinguishing between spillovers and contagion. Spillovers are detected using a generalised historical decomposition method, while contagion is identified using a portfolio mimicking factor framework using moment conditions. The transmission of spillovers is assessed to capture the direction, strength and signs of the spillovers. The findings show evidence of changing vulnerability in Asia and the US. This is as a result of increased spillovers during crisis events and the presence of contagion. Stronger connections during crisis periods are evident as well as a general deepening of the global network. These connections may result in reduced opportunities for emerging markets. The findings suggest that caution is needed when developing regulations or methods to create a stable financial system.

Suggested Citation

  • Moses Kangogo & Mardi Dungey & Vladimir Volkov, 2023. "Changing vulnerability in Asia: contagion and spillovers," Empirical Economics, Springer, vol. 64(5), pages 2315-2355, May.
    • Handle: RePEc:spr:empeco:v:64:y:2023:i:5:d:10.1007_s00181-022-02322-5
    DOI: 10.1007/s00181-022-02322-5
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    More about this item

    Keywords

    Financial stability; Financial networks; Asian markets; Financial crises; Spillover and contagion;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East
    • G01 - Financial Economics - - General - - - Financial Crises

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