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Speculative bubbles and contagion: Analysis of volatility’s clusters during the DotCom bubble based on the dynamic conditional correlation model

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  • Maximilian-Benedikt Herwarth Kohn
  • Pedro L. Valls Pereira

Abstract

Reviewing the definition and measurement of speculative bubbles in context of contagion, this paper analyses the DotCom bubble in American and European equity markets using the dynamic conditional correlation (DCC) model proposed as on one hand as an econometrics explanation and on the other hand the behavioral finance as an psychological explanation. Contagion is defined in this context as the statistical break in the computed DCCs as measured by the shifts in their means and medians. Even it is astonishing, that the contagion is lower during price bubbles, the main finding indicates the presence of contagion in the different indices among those two continents and prove the presence of structural changes during financial crisis.

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  • Maximilian-Benedikt Herwarth Kohn & Pedro L. Valls Pereira, 2017. "Speculative bubbles and contagion: Analysis of volatility’s clusters during the DotCom bubble based on the dynamic conditional correlation model," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1411453-141, January.
    • Handle: RePEc:taf:oaefxx:v:5:y:2017:i:1:p:1411453
    DOI: 10.1080/23322039.2017.1411453
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