This study tests whether contagion effects exist, during the “Asian flu”, between the stock
markets of Thailand and the Chinese economic area (CEA), including China, Hong Kong, and Taiwan.
The time points of structural breaks in stock return volatility are detected first, based on the iterated cumulative sums of squares (ICSS) algorithm developed by Incl?n and Tiao (1994), to identify the crisis period and to add dummies to avoid the overestimation of volatility. Then, time-varying correlation coefficients are estimated by the dynamic conditional correlation (DCC) multivariate GARCH model of Engle (2002). In order to recognize the contagion effect, we test whether the mean of the DCC coefficients in post-crisis period differs from that in the pre-crisis stable period. Empirical findings show that the stock markets displayed a significant increase in the means of correlation
coefficients across markets between the pre-crisis and post-crisis periods. This proves the existence of contagion between the studied markets.
Relation:
Asian Journal of Management and Humanity Sciences 1(1)：16-36
