An Investigation of Multiple Asymmetric Threshold Contagions Effects of U.S. Stock Market to Major Industrialized Countries under Turbulent Economic Conditions — Oak Academic Publishing
Research ArticleOpen AccessGoogle Scholar indexed
An Investigation of Multiple Asymmetric Threshold Contagions Effects of U.S. Stock Market to Major Industrialized Countries under Turbulent Economic Conditions
Department of Business Administration, National Taipei University, New Taipei City
,
Department of Business Administration, National Taipei University, New Taipei City
1 Department of Business Administration, National Taipei University, New Taipei City
2 Department of Business Administration, National Taipei University, New Taipei City
Researchers and academic institutions frequently use the conventional Threshold AR model. However, the model uses zero or a single random value as a threshold to convey limited information. This study intends to explore multiple asymmetric threshold effects of U.S. stock market to five major industrialized countries during turbulent economic conditions. Daily stock index returns, ranging from 1998 to 2019, are collected. A three random thresholds TAR model is built; Four hypotheses are proposed; Grid search algorithm is programmed; The testing procedure includes: linear and non-linear unit roots, structural break, likelihood ratio, Wald, and residual diagnoses are tested. The findings are as follows: The four hypotheses are significant in most of five major countries except for U.K. and Germany of contagions effects. The newly proposed multiple TAR model is superior to the traditional TAR model. During the financial crisis period, the contagions effects are greater, the threshold effects are significant, and the combined threshold contagions effects are stronger.
Azad, A. S. M. S., Battenb, J. A., Fang, A., & Wickramanayake, J. (2015). International Swap Market Contagion and Volatility. Economic Modelling, 47, 355-371. https://doi.org/10.1016/j.econmod.2015.02.001
Billio, M., & Caporin, M. (2010). Market Linkages, Variance Spillovers, and Correlation Stability: Empirical Evidence of Financial Contagion. Computational Statistics & Data Analysis, 54, 2443-2458. https://doi.org/10.1016/j.csda.2009.03.018
Calvo, G. A., Leiderman, L., & Reinhart, C. M. (1996). Inflows of Capital to Developing Countries in the 1990s. Journal of Economic Perspectives, 10, 123-139. https://doi.org/10.1257/jep.10.2.123
Chang, C. (2010). A Multivariate Causality Test of Carbon Dioxide Emissions, Energy Consumption and Economic Growth in China. Applied Energy, 87, 3533-3537. https://doi.org/10.1016/j.apenergy.2010.05.004
Chiang, T. C., & Doong, S. C. (2001). Empirical Analysis of Stock Returns and Volatility: Evidence from Seven Asian Stock Markets Based on TAR-GARCH Model. Review of Quantitative Finance and Accounting, 17, 301-318. https://doi.org/10.1023/A:1012296727217
Chudik, A., & Fratzscher, M. (2011). Identifying the Global Transmission of the 2007-2009 Financial Crisis in a GVAR Model. European Economic Review, 55, 325-339. https://doi.org/10.1016/j.euroecorev.2010.12.003
Dimitriou, D., Kenourgios, D., & Simos, T. (2013). Global Financial Crisis and Emerging Stock Market Contagion: A Multivariate FIAPARCH-DCC Approach. International Review of Financial Analysis, 30, 46-56. https://doi.org/10.1016/j.irfa.2013.05.008
Dimitriou, D., Samitas, A., & Paltalidis, N. (2011). Financial Crises and Stock Market Contagion in a Multivariate Time-Varying Asymmetric Framework. Journal of International Financial Markets, Institutions and Money, 21, 92-106. https://doi.org/10.1016/j.intfin.2010.08.005
Ding, Z., Granger, C. W. J., & Engle, R. F. (1993). A Long Memory Property of Stock Market Returns and a New Model. Journal of Empirical Finance, 1, 83-106. https://doi.org/10.1016/0927-5398(93)90006-D
Dornbusch, R., Park, Y. C., & Claessens, S. (2000). Contagion: How It Spreads and How It Can Be Stopped? World Bank.
Enders, W., & Granger, C. W. J. (1998). Unit-Root Tests and Asymmetric Adjustment with an Example Using the Term Structure of Interest Rates. Journal of Business & Economic Statistics, 16, 304-311. https://doi.org/10.1080/07350015.1998.10524769
Enders, W., & Siklos, P. L. (2001). Cointegration and Threshold Adjustment. Journal of Business & Economic Statistics, 19, 166-176. https://doi.org/10.1198/073500101316970395
Engle, R. F., & Granger, C. W. J. (1987). Co-Integration and Error Correction: Representation, Estimation, and Testing. Econometrica, 55, 251-276. https://doi.org/10.2307/1913236
Fama, E. F., & French, K. R. (1989). Business Conditions and Expected Returns on Stocks and Bonds. Journal of Financial Economics, 25, 23-49. https://doi.org/10.1016/0304-405X(89)90095-0
Flavin, T. J., & Sheenan, L. (2015). The Role of U.S. Subprime Mortgage-Backed Assets in Propagating the Crisis: Contagion or Interdependence? The North American Journal of Economics and Finance, 34, 167-186. https://doi.org/10.1016/j.najef.2015.09.001
Forbes, K., & Rigobon, R. (2002). No Contagion, Only Interdependence: Measuring Stock Market Comovements. Journal of Finance, 57, 2223-2261. https://doi.org/10.1111/0022-1082.00494
Imen, G. M., & Rim, A. (2012). A Dynamic Analysis of Financial Contagion: The Case of the Subprime Crisis. Journal of Business Studies Quarterly, 4, 11-27.
Jawadi, F., Louhichi, W., & Ameur, H. B. (2013). Do the US Trends Drive the UK-French Market Linkages?: Empirical Evidence from a Threshold Intraday Analysis. Applied Economics Letters, 20, 499-503. https://doi.org/10.1080/13504851.2012.714064
Jin, X., & An, X. (2016). Global Financial Crisis and Emerging Stock Market Contagion: A Volatility Impulse Response Function Approach. Research in International Business and Finance, 36, 179-195. https://doi.org/10.1016/j.ribaf.2015.09.019
Johansen, S. (1988). Statistical Analysis of Cointegration Vectors. Journal of Economic Dynamics and Control, 12, 231-254. https://doi.org/10.1016/0165-1889(88)90041-3
Kaminsky, G. L., & Reinhart, C. M. (1998). Financial Crises in Asia and Latin America: Then and Now. The American Economic Review, 88, 444-448.
Kaminsky, G. L., Reinhart, C. M., & Vegh, C. A. (2003). The Unholy Trinity of Financial Contagion. Journal of Economic Perspectives, 17, 51-74. https://doi.org/10.1257/089533003772034899
Kao, Y. S., Zhao, K., Ku, Y. C., & Nieh, C. C. (2019). The Asymmetric Contagion Effect from the U.S. Stock Market around the Subprime Crisis between 2007 and 2010. Economic Research-Ekonomska Istrazivanja, 32, 2422-2454. https://doi.org/10.1080/1331677X.2019.1645710
Kapetanios, G., Shin, Y., & Snell, A. (2003). Testing for a Unit Root in the Nonlinear STAR Framework. Journal of Econometrics, 112, 359-379. https://doi.org/10.1016/S0304-4076(02)00202-6
Kenourgios, D., & Dimitriou, D. (2015). Contagion of the Global Financial Crisis and the Real Economy: A Regional Analysis. Economic Modelling, 44, 283-293. https://doi.org/10.1016/j.econmod.2014.10.048
Kim, S. W., & Rogers, J. H. (1995). Evidence from Korea, Japan, and the United States. Journal of Empirical Finance, 2, 117-133. https://doi.org/10.1016/0927-5398(94)00013-7
Koutmos, G., & Booth, G. G. (1995). Asymmetric Volatility Transmission in International Stock Markets. Journal of International Money and Finance, 14, 747-762. https://doi.org/10.1016/0261-5606(95)00031-3
Kwiatkowski, D., Phillips, P., Schmidt, P., & Shin, Y. (1992). Testing the Null Hypothesis of Stationarity against the Alternative of a Unit Root: How Sure Are We that Economic Time Series Have a Unit Root? Journal of Econometrics, 54, 159-178. https://doi.org/10.1016/0304-4076(92)90104-Y
Longstaff, F. A. (2010). The Subprime Credit Crisis and Contagion in Financial Markets. Journal of Financial Economics, 97, 436-450. https://doi.org/10.1016/j.jfineco.2010.01.002
Mollah, S., Quoreshi, A., & Zafirov, G. (2016). Equity Market Contagion during Global Financial and Eurozone Crises: Evidence from a Dynamic Correlation Analysis. Journal of International Financial Markets, Institutions and Money, 41, 151-167. https://doi.org/10.1016/j.intfin.2015.12.010
Nieh, C. C., Kao, Y. S., & Yang, C. H. (2011). The Asymmetric Contagion from the U. S. Stock Market around the Subprime Crisis. In M. Susai, & S. Uchida (Eds.), Studies on Financial Markets in East Asia (pp. 19-39). Singapore: World Scientific. https://doi.org/10.1142/9789814343374_0002
Nieh, C. C., Yang, C. H., & Kao, Y. S. (2012). Who Has More Influence on Asian Stock Markets around the Subprime Mortgage Crisis—The US or China? Applied Economics Letters, 19, 329-335. https://doi.org/10.1080/13504851.2011.577001
Phillips, P. C. B., & Perron, P. (1988). Testing for a Unit Root in Time Series Regression. Biometrika, 75, 335-346. https://doi.org/10.1093/biomet/75.2.335
Potterba, J. M., & Summers, L. H. (1988). Mean Reversion in Stock Prices: Evidence and Implications. Journal of Financial Economics, 22, 27-59. https://doi.org/10.1016/0304-405X(88)90021-9
Said, S. E., & Dickey, D. A. (1984). Testing for Unit Roots in Autoregressive Moving Average Models of Unknown Order. Biometrika, 71, 599-607. https://doi.org/10.1093/biomet/71.3.599
Schwert, G. W. (2011). Stock Volatility during the Recent Financial Crisis. European Financial Management, 17, 789-805. https://doi.org/10.1111/j.1468-036X.2011.00620.x
Sheng, H. C., & Tu, A. H. (2000). A Study of Cointegration and Variance Decomposition among National Equity Indices before and during the Period of the Asian Financial Crisis. Journal of Multinational Financial Management, 10, 345-365. https://doi.org/10.1016/S1042-444X(00)00034-7
Syllignakis, M. N., & Kouretas, G. P. (2011). Dynamic Correlation Analysis of Financial Contagion: Evidence from the Central and Eastern European Markets. International Review of Economics & Finance, 20, 717-732. https://doi.org/10.1016/j.iref.2011.01.006
Wooldridge, J. M. C. (2012). Introductory Econometrics: A Modern Approach (5th ed.). Boston, MA: Cengage Learning.