Endogenous crisis dating and contagion using smooth transition structural GARCH

Mardi Dungey, George Milunovich, Susan Thorp*, Minxian Yang

*Corresponding author for this work

Research output: Contribution to journalArticle

28 Citations (Scopus)

Abstract

Detecting contagion during financial crises requires the demarcation of crisis periods. We develop a method for endogenously dating both the start and finish of crises, along with measuring contagion effects. Identification is achieved by coupling smooth transition functions with structural GARCH. In an application to US equity, bond and REIT returns for 2001-2010, we identify four phases; a pre-crisis period to July 2007, two phases of crisis up to and following October 2008, and a post-crisis phase from mid-May 2009. We detect significant contagion during the crisis and find evidence that the post-crisis period has not returned to pre-crisis relations.

Original languageEnglish
Pages (from-to)71-79
Number of pages9
JournalJournal of Banking and Finance
Volume58
DOIs
Publication statusPublished - 1 Sep 2015

Keywords

  • Contagion
  • Global Financial Crisis
  • Structural GARCH

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