تأثیر سرایت بیشتر بر بازارهای نوظهور: شواهدی از مدل DCC-GARCH

The paper aims to test the existence of financial contagion between foreign exchange markets of several emerging and developed countries during the U.S. subprime crisis. As a result of DCC-GARCH analysis, we find the evidence of contagion during U.S. subprime crisis for most of the developed and emerging countries. Another finding is that emerging markets seem to be the most influenced by the contagion effects during U.S. subprime crisis. Since financial contagion is important for monetary policy, risk measurement, asset pricing and portfolio allocation, the findings of paper may be interest of policy makers, investors and portfolio managers.

During the past years, financial markets have been suffered from U.S. financial crisis triggered by the bursting of the U.S. mortgage bubble. Fig. 1 shows dramatic movements in foreign exchange markets of several developed and emerging countries during the global crisis. While the value of U.S dollar is decreasing, the value of several countries national currency is increasing during crisis period. These cases imply that dramatic movements in one foreign exchange market may have a powerful impact on markets throughout the world. These co-movements of different countries financial markets may arise from contagion or interdependence betweeen financial markets. Full-size image (118 K) Full-size image (118 K) Full-size image (59 K) Fig. 1. Foreign exchange rate price series. Figure options Definition of contagion is one of the most debated topic in the literature. In this paper, contagion is defined as a significant increase in the cross-market correlation during the period of crisis (Forbes and Rigobon, 2002). Therefore, it is necessary to compare the correlation between two financial markets during relatively stable period (pre-crisis) to the during a period of turmoil (crisis period). According to this approach, if two markets are moderately correlated during periods of stability and a shock to one market leads to a significant increase in market co-movement, this would generate contagion. However, if two markets are traditionally highly correlated, even if they continue to be highly correlated after a shock to one market, this may not generate contagion. In other words, it is only contagion if the cross-market correlation increases significantly in crisis period. If the correlation does not increase significantly, this co-movement between financial markets is called interdependence which refers to strong real linkages between two economies (Forbes and Rigobon, 2002). The pattern and severity of of financial contagion depend on markets' sensivities to shared macroeconomic risk factors, and on the amount of information asymmetry in each market (Kodres and Pritsker, 2002). Countries do not need to be linked directly by macroeconomic fundementals in order to transmit shocks. All that is required for transmission of shocks is for macroeconomic variables to be shared indirectly through other countries. Another conclusion from contagion is that information asymmetries increase the effect of contagion. The effect of contagion on asset prices are greater in markets with greater information asymmetries. Large fluctuations in asset prices is experienced in countries with high level of asymmetris information, whereas countries with low levels of asymmetric information do not. Because, emerging markets have higher levels of asymmetric information than do developed markets, it is expected that emerging markets are influenced much more severely by contagion than developed markets (Lhost, 2004). The issue of contagion in financial markets is of fundamental importance because of its important consequences for the global economy in relation to monetary policy, optimal asset allocation, risk measurement, capital adequacy and asset pricing. Recent important papers focus on contagion includes Longstaff (2010), Aloui et al. (2011) and many others. While some papers focus on history of financial crisis and crisis models (Bordo and Eichengreen, 1999 and Kaminsky and Reinhart, 1999), papers focus on theoratical models on contagion also participate in the literature (Calvo and Mendoza, 2000 and Kodres and Pritsker, 2002). In the literature, studies mostly concentrate on empirical application of contagion tests. (Bae et al., 2003, Bekaert et al., 2005, Corsetti et al., 2002, Eichengreen et al., 1995, Eichengreen et al., 1996, Favero and Giavazzi, 2002 and Forbes and Rigobon, 2002). In the literature, some papers test the existence of contagion of various crisis on different financial markets [Stock Markets: ( Bouaziz et al., 2012, Chiang et al., 2007, Cho and Parhizgari, 2008 and Khan and Park, 2009); Foreign Exchange Markets: ( Dungey et al., 2004, Horen et al., 2006 and Tai, 2007), Bond Markets: ( Dungey et al., 2006 and Ismailescu and Kazemi, 2008); Future Markets: ( Tai, 2003); Credit Default Swap Markets ( Coudert and Gex, 2008 and Jorion and Zhang, 2007)], some examine the transfer mechanism of these crises from one country to another. They try to explain the contagion effect through trade linkages between countries ( Glick and Rose, 1999) or through transnational financial linkages ( Van Rijckeghem and Weder, 2001). In addition to papers related to contagion impact of earlier crisis, studies on recent Global Crisis also take part in literature. For example, Longstaff (2010) studies the contagion effects of CDO market on stock exchange markets and bond markets. Longstaff (2010) uses data of ABX index, 1 and 10 year maturity bond yields, and U.S. stock index returns. Longstaff (2010) observes important findings concerning contagion in financial markets and concludes that contagion effects spread first from lower-rated ABX indexes to higher-rated ABX indexes, and then from the subprime markets to the Treasury bond and stock markets. Horta et al. (2008) analyse contagion impact of American subprime mortgage crisis on Canadian, Japanese, Italian, France, UK, German and Portuguese stock exchnage markets by using copula models. As a result, while Horta et al. (2008) confirm remarkable contagion impact for Canada, Japan, Italy, France and UK, for Germany this impact is not significant as other countries. The most contagion impact is observed in Canada. Dungey (2009) examines contagion between U.S, U.K. , Europen, Japanese and Australian money markets and stock exchange markets during the credit crunch period. The findings of Dungey (2009) can be summarized as follows: volatility in global shocks are transmitted to all markets in the same manner as during the non-crisis period. The contribution of contagion to volatility in the non-U.S. markets is in line with results found for the contribution of contagion in evidence get for previous crises. The U.S. equity market seems to have a role in absorbing shocks from the U.S. money market and acts as the distributor of these shocks to other markets. Naoui et al. (2010) test the existence of contagion phenomenon following the U.S. subprime crisis for six developed and ten emerging stock markets by applying Dynamic Conditional Correlation Model. They conclude that contagion is strong between U.S. and the develeoped and emerging countries during the subprime crisis. Hwang et al. (2010) examine the contagion effects of the U.S. subprime crisis on international stock markets using a DCC-GARCH model on 38 country data. In conclusion, they find evidence of financial contagion not only in emerging markets but also in developed markets during the U.S. subprime crisis. Bouaziz et al. (2012) test the contagion effect of the U.S. stock market on the stock markets of developed countries during the subprime financial crisis (2007–2008) by using DCC-GARCH model. As a result of DCC-GARCH model, they find that correlations between markets have significantly increased during the U.S. subprime crisis period and conclude that the crisis has spread across different markets, which is a clear evidence of contagion. The literature on contagion of financial crisis seems to be focused on mostly stock exchange markets. This paper aims to test the existence of financial contagion between foreign exchange markets during the U.S. subprime crisis. This paper makes several important contributions to the recent literature on financial contagion. First, this paper tests the existence of contagion between foreign exchange markets different from the existence literature which largely focus on testing contagion between stock markets. Focusing on foreign exchange markets provides to reduce the problems arising from different time zones of the markets because foreign exchange markets are the most liquid financial market in the world and foreign exchange trading takes place around the world 24 h a day. Second, the paper aims to answer the question of whether emerging markets are more vulnerable to financial crisis than developed markets during the analysed period. The paper is organized as follows. Section 2 defines the dataset. Section 3 describes the methodology used. Section 4 presents and discusses the empirical findings. Section 5 summarizes and concludes.

This paper aims to test the existence of financial contagion between foreign exchange markets during the U.S. subprime crisis by employing DCC-GARCH model which has some advantages over the other metholodogies. We examine the contagion effect of U.S. subprime crisis on 10 emerging and 9 developed markets for the period 2005–2009. Main findings of the analyses are as follows: As a result of analysis, we find the evidence of contagion during U.S. subprime crisis for most of the developed and emerging countries. This supports that of Hwang et al. (2010) who find the evidence of financial contagion not only in emerging markets but also in developed markets during the U.S. subprime crisis. In addiditon to this paper, Naoui et al. (2010) find the financial contagion evidence from U.S. market to Brazil, Korea, Malaysia, Mexico, Singapore supporting the findings of this paper. However, they cannot find the financial contagion effect in China and Taiwan different from our results. Our second finding is that the analysis of the pattern of the conditional correlation coefficients provides no evidence in favor of contagion effects in foreign exchange markets of Japan, South Africa, Switzerland and Thailand. This result is not consistent with that of Horta et al. (2008) who find contagion effect in Japan stock markets. The another finding is that emerging markets seem to be the most influenced by the contagion effects from U.S. This result is expected since emerging markets are more unstable than developed countries. Due to this instability, financial contagion can have wide spread harmful consequences in emerging countries. The findings of paper are important for policy makers in emerging markets since the instability through financial contagion influences their development. Therefore, policy makers in emerging countries should seek ways to close the channels of contagion to decrease the instability in emerging countries. The findings of the paper may be of interest to international investors and portfolio manager since the high correlation coefficients during crisis periods imply that the gain from international diversification by holding a portfolio consisting of diverse foreign currencies from these contagion countries decrease. Testing the presence of financial contagion on other asset markets and using high frequency data will provide broader evidence on financial contagion.