Transmission of Financial Crises and Contagion:: A Latent Factor Approach available in Hardcover
Transmission of Financial Crises and Contagion:: A Latent Factor Approach
- ISBN-10:
- 0199739838
- ISBN-13:
- 9780199739837
- Pub. Date:
- 01/07/2011
- Publisher:
- Oxford University Press, USA
- ISBN-10:
- 0199739838
- ISBN-13:
- 9780199739837
- Pub. Date:
- 01/07/2011
- Publisher:
- Oxford University Press, USA
Transmission of Financial Crises and Contagion:: A Latent Factor Approach
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Overview
Product Details
ISBN-13: | 9780199739837 |
---|---|
Publisher: | Oxford University Press, USA |
Publication date: | 01/07/2011 |
Series: | CERF Monographs on Finance and the Economy Series |
Pages: | 228 |
Product dimensions: | 6.30(w) x 9.30(h) x 0.90(d) |
About the Author
MD: Professor of Economics and Finance, University of Tasmania
RF: Research Associate, Centre for Financial Analysis and Policy
BGH: Deputy Division Chief of Global Financial Stability, Monetary and Capital Markets Department, International Monetary Fund
VM: Professor of Econometrics, University of Melbourne
Table of Contents
Preface vii
Acknowledgements ix
1 Introduction 1
2 Review of the Empirical Literature 7
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2 Defining Contagion . . . . . . . . . . . . . . . . . . . . . . . . 8
2.3 AModel of Interdependence . . . . . . . . . . . . . . . . . . . 10
2.4 An EmpiricalModel of Contagion . . . . . . . . . . . . . . . . 12
2.4.1 Bivariate Testing . . . . . . . . . . . . . . . . . . . . . 13
2.4.2 Multivariate Testing . . . . . . . . . . . . . . . . . . . 15
2.4.3 Structural Breaks . . . . . . . . . . . . . . . . . . . . . 16
2.4.4 Using Just CrisisData . . . . . . . . . . . . . . . . . . 17
2.4.5 Autoregressive and HeteroskedasticDynamics . . . . . 17
2.5 Correlation and Covariance Analysis . . . . . . . . . . . . . . 19
2.5.1 Bivariate Testing . . . . . . . . . . . . . . . . . . . . . 20
2.5.2 Alternative Formulation . . . . . . . . . . . . . . . . . 22
2.5.3 Multivariate Testing . . . . . . . . . . . . . . . . . . . 24
2.5.4 Endogeneity Issues . . . . . . . . . . . . . . . . . . . . 27
2.5.5 Relationship withOtherModels . . . . . . . . . . . . . 29
2.6 Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.6.1 Stylized Facts . . . . . . . . . . . . . . . . . . . . . . . 34
2.6.2 Implementation Issues . . . . . . . . . . . . . . . . . . 34
2.6.3 Contagion Testing . . . . . . . . . . . . . . . . . . . . 36
2.7 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3 Contagion in Global Bond Markets 41
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.2 Background of Events and Propositions . . . . . . . . . . . . . 43
3.2.1 Stylized Facts . . . . . . . . . . . . . . . . . . . . . . . 43
3.2.2 Propositions . . . . . . . . . . . . . . . . . . . . . . . . 45
3.3 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.4 AFactorModel of Bond Spreads . . . . . . . . . . . . . . . . 48
3.5 EstimationMethod . . . . . . . . . . . . . . . . . . . . . . . . 54
3.6 Empirical Results . . . . . . . . . . . . . . . . . . . . . . . . . 56
3.7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
3.A Data Definitions and Sources . . . . . . . . . . . . . . . . . . 62
3.B Descriptive Statistics . . . . . . . . . . . . . . . . . . . . . . . 62
3.C Unit Root Tests . . . . . . . . . . . . . . . . . . . . . . . . . . 62
3.D EstimatedGARCHModels . . . . . . . . . . . . . . . . . . . . 63
4 Contagion in Global Equity Markets 65
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
4.2 AModel of Financial Turmoil . . . . . . . . . . . . . . . . . . 66
4.2.1 ABenchmarkModel . . . . . . . . . . . . . . . . . . . 67
4.2.2 AModel Incorporating Contagion . . . . . . . . . . . . 69
4.3 Empirical Issues . . . . . . . . . . . . . . . . . . . . . . . . . . 72
4.3.1 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
4.3.2 GMMEstimator . . . . . . . . . . . . . . . . . . . . . 74
4.4 Empirical Results . . . . . . . . . . . . . . . . . . . . . . . . . 75
4.4.1 Parameter Estimates . . . . . . . . . . . . . . . . . . . 75
4.4.2 Volatility Decompositions . . . . . . . . . . . . . . . . 77
4.4.3 Structural Break Tests . . . . . . . . . . . . . . . . . . 78
4.4.4 Robustness Checks . . . . . . . . . . . . . . . . . . . . 78
4.4.5 Comparison with BondMarket Transmissions . . . . . 79
4.5 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
5 Are Crises Alike? 83
5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
5.2 AModel of Contagion . . . . . . . . . . . . . . . . . . . . . . 85
5.3 Empirical Factor Specification . . . . . . . . . . . . . . . . . . 89
5.3.1 Noncrisis Specification . . . . . . . . . . . . . . . . . . 90
5.3.2 Crisis Specification . . . . . . . . . . . . . . . . . . . . 91
5.4 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
5.4.1 Filters . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
5.4.2 CrisisDates . . . . . . . . . . . . . . . . . . . . . . . . 97
5.5 Empirical Results . . . . . . . . . . . . . . . . . . . . . . . . . 99
5.5.1 Evidence of Contagion . . . . . . . . . . . . . . . . . . 100
5.5.2 Comparison of Contagion Channels Across Crises . . . 103
5.5.3 Testing the Channels of Contagion . . . . . . . . . . . 104
5.6 Robustness Checks andAdditional Tests . . . . . . . . . . . . 105
5.6.1 CrisisDating SensitivityAnalysis . . . . . . . . . . . . 105
5.6.2 ConditionalMoment Tests . . . . . . . . . . . . . . . . 107
5.6.3 Structural Break Tests . . . . . . . . . . . . . . . . . . 107
5.7 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
5.A Model Derivations . . . . . . . . . . . . . . . . . . . . . . . . . 111
5.A.1 Optimal PortfolioWeights . . . . . . . . . . . . . . . . 111
5.A.2 Informed Conditional Expectations . . . . . . . . . . . 112
5.A.3 Uninformed Conditional Expectations . . . . . . . . . . 113
5.A.4 Excess Returns Equation . . . . . . . . . . . . . . . . . 115
5.B Data Sources and Definitions . . . . . . . . . . . . . . . . . . 118
5.C Additional VarianceDecompositions . . . . . . . . . . . . . . 118
6 Characterizing Global Risk 119
6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
6.2 AModel of Risk Premia . . . . . . . . . . . . . . . . . . . . . 121
6.2.1 Model Specification . . . . . . . . . . . . . . . . . . . . 122
6.2.2 Identifying RiskQuantities . . . . . . . . . . . . . . . . 124
6.2.3 Estimation . . . . . . . . . . . . . . . . . . . . . . . . . 126
6.3 Empirical Estimates . . . . . . . . . . . . . . . . . . . . . . . 126
6.3.1 RiskQuantities . . . . . . . . . . . . . . . . . . . . . . 126
6.3.2 Risk Prices . . . . . . . . . . . . . . . . . . . . . . . . 128
6.4 Historical Decomposition of Risk Premia . . . . . . . . . . . . 129
6.4.1 Benchmark Spread Estimates . . . . . . . . . . . . . . 130
6.4.2 Global Risk Factor Estimates . . . . . . . . . . . . . . 130
6.4.3 Country Risk Factor Estimates . . . . . . . . . . . . . 131
6.4.4 ContagionRisk Factor Estimates . . . . . . . . . . . . 132
6.5 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
6.A Data Definitions and Sources . . . . . . . . . . . . . . . . . . 134
6.B CrisisDates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
7 Conclusions 135
Bibliography 141