A new class of tests of contagion with applications
Date
2010-07
Authors
Fry, Renée
Martin, Vance L.
Tang, Chrismin
Journal Title
Journal ISSN
Volume Title
Publisher
Taylor & Francis
Abstract
A new class of tests of contagion is proposed identifying transmission channels of financial market crises through changes in higher order moments of the distribution of returns such as coskewness. Applying the framework to test for contagion in real estate and equity markets following the Hong Kong crisis in 1997–1998 and the U.S. subprime crisis in 2007 shows that the coskewness-based tests of contagion detect additional channels not identified by the correlation-based tests. Implications of contagion in pricing exchange options where there is a change in higher order comoments of returns on the underlying assets are also investigated.
Description
Keywords
coskewness, exchange options, Hong Kong crisis, Lagrange multiplier tests, subprime mortgage crisis
Citation
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Source
Journal of Business and Economic Statistics 28.3 (2010):423-437
Type
Journal article