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Using the autoregressive conditional duration model to analyse the process of default contagion

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  • Heng-Chih Chou

Abstract

Credit events are not independent, and the contagion effect is very common. The seriousness of the contagion effect depends on the change in the default contagion duration before and after credit events. This study uses the Autoregressive Conditional Duration (ACD) model to capture the durations of a series of credit events and to study the characteristics of a default duration series. The empirical samples are listed and Over-The-Counter (OTC) companies in Taiwan. The Moving Block Bootstrap (MBB) in Liu and Singh (1992) is employed to copy the sample data. The sample period is from October 1982 to December 2007. The results show that, in the entire sample and subsamples of the electronic information industry and construction industry, the default duration series demonstrates the conditional autocorrelation and cluster effect. The ACD model helps capture the contagion effect of credit events.

Suggested Citation

  • Heng-Chih Chou, 2012. "Using the autoregressive conditional duration model to analyse the process of default contagion," Applied Financial Economics, Taylor & Francis Journals, vol. 22(13), pages 1111-1120, July.
    • Handle: RePEc:taf:apfiec:v:22:y:2012:i:13:p:1111-1120
    DOI: 10.1080/09603107.2011.641927
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    1. Pesaran, M. Hashem & Pick, Andreas, 2007. "Econometric issues in the analysis of contagion," Journal of Economic Dynamics and Control, Elsevier, vol. 31(4), pages 1245-1277, April.
    2. Fernandes, Marcelo & Grammig, Joachim, 2006. "A family of autoregressive conditional duration models," Journal of Econometrics, Elsevier, vol. 130(1), pages 1-23, January.
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    Cited by:

    1. Michael Beenstock & Mahmood Khatib, 2018. "Contagion And Correlation In Empirical Models Of Bank Credit Risk In Israel," Israel Economic Review, Bank of Israel, vol. 15(1), pages 1-34.
    2. Ming-Tao Chou & Cherie Lu, 2016. "Correlations and Volatility Spillovers between the Carbon Trading Price and Bunker Index for the Maritime Industry," Review of Economics & Finance, Better Advances Press, Canada, vol. 6, pages 93-101, November.

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