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Testing for Contagion of the Subprime Financial Crisis under Asymmetric Dynamics

Author

Listed:
  • Nadhem Selmi

    (FSEG Sfax - Faculté des Sciences Economiques et de Gestion de Sfax - Université de Sfax - University of Sfax)

  • Meriam Chihi-Bouaziz

    (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique - UniCA - Université Côte d'Azur)

  • Nejib Hachicha

    (FSEG Sfax - Faculté des Sciences Economiques et de Gestion de Sfax - Université de Sfax - University of Sfax)

  • Younes Boujelbène

    (UREA - FSEG Sfax)

  • Damien Bazin

    (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique - UniCA - Université Côte d'Azur)

Abstract

Within a forward forecast test on Dynamic Conditional Correlation (DCC), we investigate the contagion of the subprime financial crisis between American, European and Asian stocks under asymmetry. In order to study this phenomenon we will follow these stages: Firstly we will use the Iterated Cumulative Sums of Squares (ICSS) algorithm to detect the structural breaks of market returns. Secondly we will create dummy variables for breaks, estimate EGARCH model of conditional generalized error distribution, and compute dynamic conditional correlation coefficients of DCC multivariate GARCH model. Finally we will employ "One step" and "N-step" forecast test to check the contagion effect. The results we have found show the asymmetric leverage effect of the American, European and Japanese stock Indices. However, we can conclude that there are two categories of contagion, ''positive'' and ''negative'' among different markets.

Suggested Citation

  • Nadhem Selmi & Meriam Chihi-Bouaziz & Nejib Hachicha & Younes Boujelbène & Damien Bazin, 2013. "Testing for Contagion of the Subprime Financial Crisis under Asymmetric Dynamics," Post-Print halshs-01070751, HAL.
    • Handle: RePEc:hal:journl:halshs-01070751
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01070751
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    References listed on IDEAS

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