A New Cointegration Econometric Analysis for Contagious and Volatility Spillovers of Subprime Crisis Effects

Tarek Sadraoui^1, , Bechir Deghachi² and Rahma Ben Aissa²

¹Department of Quantitative Methods, Faculty of economic sciences and Management of Mahdia

²Department of Quantitative Methods, Higher Institute of Society Administration

Cite this paper:
Tarek Sadraoui, Bechir Deghachi and Rahma Ben Aissa. A New Cointegration Econometric Analysis for Contagious and Volatility Spillovers of Subprime Crisis Effects. International Journal of Econometrics and Financial Management. 2016; 4(2):29-38. doi: 10.12691/ijefm-4-2-1

Abstract

We examine spillover effects of the recent U.S. financial crisis on five emerging Asian countries by estimating conditional correlations of financial asset returns across countries using multivariate GARCH models. We propose a novel approach that simultaneously estimates the conditional correlation coefficient and the effects of its determining factors over time, which can be used to identify the channels of spillovers. We find a dominant role of foreign investment for the conditional correlations in international equity markets. The dollar Libor OIS spread, the sovereign CDS premium, and foreign investment are found to be significant factors affecting foreign exchange markets.

Keywords:
subprime crisis contagion volatility of stock returns VAR

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