Is there contagion in stock market returns during extreme events?

Abstract

We study the existence of contagion during three different events: the 1987 Stock Market Crash, the 1997 East Asian Crisis and the 2008 Global Financial Crisis. Using a naïve approach, it can be inferred that during a crisis, the correlation between countries’ stock market returns increases - an indication of contagion. However, tests that do not consider heteroscedasticity are biased. Using two different methodologies, one based on the Vector Autoregressive (VAR) correlation heteroscedastic adjusted estimates, and another based on Dynamic Conditional Correlation (DCC) models, we find no evidence of contagion. This thesis shows that country diversification still matters even in times of crisis.

Date of Award	24 Jul 2017
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	José Faias (Supervisor)