Premium
On spatial contagion and multivariate GARCH models
Author(s) -
Jaworski Piotr,
Pitera Marcin
Publication year - 2013
Publication title -
applied stochastic models in business and industry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.413
H-Index - 40
eISSN - 1526-4025
pISSN - 1524-1904
DOI - 10.1002/asmb.1977
Subject(s) - copula (linguistics) , autoregressive conditional heteroskedasticity , econometrics , financial contagion , multivariate statistics , monotonic function , gaussian , economics , financial market , mathematics , computer science , statistics , finance , volatility (finance) , mathematical analysis , physics , quantum mechanics
We propose a method for defining and measuring spatial contagion between two financial markets via conditional copulas. Some theoretical results on monotonicity and asymptotic properties of Gaussian copulas with respect to conditioning are presented. Next, we combine the spatial contagion approach with time series models. We investigate which model from a large family of multivariate GARCH is the best tool for modelling spatial contagion. In an empirical study, we show that among models designed for general fit, a two‐step model fitting procedure reduces the ability to describe the contagion effect. This is a feature of copula‐GARCH models. Copyright © 2013 John Wiley & Sons, Ltd.