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Endogenous crisis dating and contagion using smooth transition structural GARCH

Dungey, M, Milunivich, G, Thorpe, S and Yang, M 2012 , Endogenous crisis dating and contagion using smooth transition structural GARCH.

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Detecting contagion during financial crises requires demarcation of crisis periods. This paper presents a method for endogeneous dating of both the start and finish of
crises, coupled with the statistical detection of contagion effects. We couple smooth transition functions with structural GARCH to identify both features of markets
in crisis, and provide conditions under which these eects will be identified. To illustrate we apply the framework to US financial returns in REITS, S&P500 and Treasury bonds indices over the period 2001 to 2010, and clearly identify four phases consistent with a pre-crisis period to October 2007, two phases of crisis up to and following late August 2008, and a post-crisis phase dating from June 2009. The evidence strongly supports changes in the transmission mechanisms of shocks between asset returns during the crisis, and particularly contagion from equity markets to
REITS. The post-crisis period has not returned to pre-crisis relationships.

Item Type: Report (Discussion Paper)
Authors/Creators:Dungey, M and Milunivich, G and Thorpe, S and Yang, M
Keywords: Contagion; Structural GARCH; Global Financial Crisis;repec
Publisher: University of Tasmania
Additional Information:

Copyright 2012 University of Tasmania

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