Cross-Market Correlations and Financial Contagion from Developed to Emerging Economies: A Case of COVID-19 Pandemic
Abstract
:1. Introduction
2. Literature Review
3. Research Methodology
4. Results
4.1. Regime Switching Model
4.2. DCC-G.A.R.C.H. Results
4.3. Test of Contagion
4.3.1. Contagion in Asia Region
4.3.2. Contagion in Africa and Middle East Region
5. Discussion
6. Conclusions and Implications
Author Contributions
Funding
Conflicts of Interest
References
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Regimes | Variable | Coefficient | Std. Error | z-Statistic | Prob. |
---|---|---|---|---|---|
Regime1 | log(sigma) | −4.816 | 0.088 | −54.272 | 0.000 |
Regime 2 | Log(sigma) | −3.669 | 0.159 | −22.974 | 0.000 |
Common | Return(–1) | −0.062 | 0.096 | −0.649 | 0.515 |
Transition Matrix Parameters | |||||
Variable | Coefficient | Std. Error | z-Statistic | Prob. | |
P11-C | 3.602 | 0.796 | 4.523 | 0.000 | |
P21-C | −2.675 | 0.927 | −2.884 | 0.003 |
Constant Transition Probabilities | |||
---|---|---|---|
P(i,k) = P(s(t) = k|s(t − 1) = i) | |||
(row = i/column = j) | |||
1 | 2 | ||
1 | 0.973 | 0.026 | |
2 | 0.064 | 0.935 |
Variance Equation | ||||
---|---|---|---|---|
CRISIS | PRE-CRISIS | |||
Country | ||||
U.S. | 0.361 (0.168) | 0.548 (0.002) | 0.167 (0.000) | 0.717 (0.050) |
India | 0.231 (0.020) | 0.767 (0.000) | 0.097 (0.000) | 0.774 (0.000) |
China | 0.007 (0.611) | 0.976 (0.000) | 0.0815 (0.260) | 0.901 (0.000) |
Taiwan | 0.115 (0.181) | 0.737 (0.000) | 0.098 (0.368113) | 0.624 (0.000) |
Thailand | 0.223 (0.065) | 0.760 (0.000) | 0.000 (0.786) | 0.998 (0.000) |
Multivariate DCC | Equation | |||
DCC(a) | 0.000 (0.999) | 0.000 (0.999) | ||
DCC(b) | 0.919 (0.000) | 0.910 (0.000) |
Variance Equation | ||||
---|---|---|---|---|
CRISIS | PRE-CRISIS | |||
Country | ||||
U.S. | 0.108 (0.000) | 0.878 (0.000) | 0.167 (0.000) | 0.733 (0.000) |
Egypt | 0.055 (0.039) | 0.933 (0.000) | 0.000 (0.999) | 0.998 (0.000) |
U.A.E. | 0.144 (0.182) | 0.854 (0.000) | 0.000 (0.886) | 0.996 (0.000) |
Saudi Arabia | 0.086 (0.039) | 0.912 (0.000) | 0.000 (0.963) | 0.997 (0.000) |
South Africa | 0.100 (0.002) | 0.891 (0.000) | 0.000 (0.999) | 0.999 (0.000) |
Multivariate DCC equations | ||||
DCC(a) | 0.001 (0.798) | 0.011 (0.134) | ||
DCC(b) | 0.815 (0.001) | 0.928 (0.000) |
Country | (Mean) Pre-Crisis | (Mean) Crisis | t-Test | Contagion |
---|---|---|---|---|
Japan–India | 0.965 | 0.529 | −78.02 | N |
Japan–China | 0.965 | 0.529 | −78.02 | N |
Japan–Taiwan | 0.980 | 0.681 | −82.536 | N |
Japan–Thailand | 0.976 | 0.567 | −110.33 | N |
U.S.–India | −0.011 | 0.196 | 73.086 | C |
U.S.–China | −0.013 | −0.038 | −10.374 | N |
U.S.–Taiwan | −0.017 | −0.000 | −4.6896 | N |
U.S.–Thailand | −0.009 | 0.258 | 156.38 | C |
U.K.–India | −0.726 | 0.576 | 38.3 | C |
U.K.–China | −0.663 | 0.363 | 24.5 | C |
U.K.–Taiwan | −0.710 | 0.433 | 30.988 | C |
U.K.–Thailand | −0.701 | 0.555 | 33.337 | C |
Country | (Mean) Pre-Crisis | (Mean) Crisis | t-Test | Contagion |
---|---|---|---|---|
Japan–Egypt | 0.967 | 0.415 | −77.359 | N |
Japan–South Africa | 0.909 | 0.585 | −21.808 | N |
Japan–Saudi Arabia | 0.844 | 0.357 | −22.151 | N |
Japan–U.A.E. | −0.020 | 0.402 | 160.59 | C |
U.S.–Egypt | 0.000 | 0.075 | 26.149 | C |
U.S.–Saudi Arabia | 0.725 | 0.458 | −8.0159 | N |
U.S.–U.A.E. | −0.013 | 0.142 | 77.80 | C |
U.S.–South Africa | −0.005 | 0.153 | 154.5 | C |
U.K.–Egypt | −0.721 | 0.288 | 30.108 | C |
U.K.–U.A.E. | 0.055 | 0.436 | −40.012 | N |
U.K.–Saudi Arabia | −0.641 | 0.416 | 24.877 | C |
U.K.–South Africa | −0.597 | 0.776 | 28.35 | C |
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Siddiqui, T.A.; Khan, M.F.; Naushad, M.; Syed, A.M. Cross-Market Correlations and Financial Contagion from Developed to Emerging Economies: A Case of COVID-19 Pandemic. Economies 2022, 10, 147. https://doi.org/10.3390/economies10060147
Siddiqui TA, Khan MF, Naushad M, Syed AM. Cross-Market Correlations and Financial Contagion from Developed to Emerging Economies: A Case of COVID-19 Pandemic. Economies. 2022; 10(6):147. https://doi.org/10.3390/economies10060147
Chicago/Turabian StyleSiddiqui, Taufeeque Ahmad, Mazia Fatima Khan, Mohammad Naushad, and Abdul Malik Syed. 2022. "Cross-Market Correlations and Financial Contagion from Developed to Emerging Economies: A Case of COVID-19 Pandemic" Economies 10, no. 6: 147. https://doi.org/10.3390/economies10060147
APA StyleSiddiqui, T. A., Khan, M. F., Naushad, M., & Syed, A. M. (2022). Cross-Market Correlations and Financial Contagion from Developed to Emerging Economies: A Case of COVID-19 Pandemic. Economies, 10(6), 147. https://doi.org/10.3390/economies10060147