Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2015-03-26
Number: 15-040/III
Author-Name: Sungyong Park
Author-Workplace-Name: Chung-Ang University, Seoul, Korea
Author-Name: Wendun Wang
Author-Workplace-Name: Erasmus University Rotterdam, the Netherlands
Author-Name: Naijing Huang
Author-Workplace-Name: Boston College, United States
Title: Testing for Stock Market Contagion: A Quantile Regression Approach
Abstract: Regarding the asymmetric and leptokurtic behavior of financial data, we propose a new
contagion test in the quantile regression framework that is robust to model misspecification. Unlike conventional correlation-based tests, the proposed quantile contagion test allows us to investigate the stock market contagion at various quantiles, not only at the mean. We show that the quantile contagion test can detect a contagion effect that is possibly ignored by correlation-based tests. A wide range of simulation studies show that the proposed test is superior to the correlation-based tests in terms of size and power. We compare our test with correlation-based tests using three real data sets: the 1994 Tequila crisis, the 1997 Asia crisis, and the 2001 Argentina crisis. Empirical results show substantial differences between two types of tests.
Classification-JEL: C21, C58, D53
Keywords: Financial contagion, Quantile regression, One-sided score test
File-Url: https://papers.tinbergen.nl/15040.pdf
File-Format: application/pdf
File-Size: 887308 bytes
Handle: RePEc:tin:wpaper:20150040