tailieunhanh - NO CONTAGION, ONLY INTERDEPENDNECE: MEASURING STOCK MARKET COMOVEMENTS

The purpose of this paper is to analyse the risk-neutral density derived from prices of DAX options. We focus on observable factors that may influence changes in the moments of the RND. For this purpose, we investigate the impact of various macroeconomic and financial variables on risk-neutral densities of stock market movements. In this way, we attempt to uncover relationships between the implied volatility, skewness and kurtosis computed from the RND and the underlying fundamentals of the stock market. Our sample runs from December 1995 to November 2001. The period under review includes both the strong rise and the subsequent fall of the German stock market. To. | THE JOURNAL OF FINANCE VOL. LVII NO. 5 OCTOBER 2002 No Contagion Only Interdependence Measuring Stock Market Comovements KRISTIN J. FORBES and ROBERTO RIGOBON ABSTRACT Heteroskedasticity biases tests for contagion based on correlation coefficients. When contagion is defined as a significant increase in market comovement after a shock to one country previous work suggests contagion occurred during recent crises. This paper shows that correlation coeff icients are conditional on market volatility. Under certain assumptions it is possible to adjust for this bias. Using this adjustment there was virtually no increase in unconditional correlation coefficients . no contagion during the 1997 Asian crisis 1994 Mexican devaluation and 1987 . market crash. There is a high level of market comovement in all periods however which we call interdependence. In October 1997 THE Hong Kong stock market declined sharply and then partially rebounded. As shown in Figure 1 this movement affected markets in North and South America Europe and Africa. In December 1994 the Mexican market dropped significantly and as shown in Figure 2 this fall was quickly reflected in other Latin American markets. Figure 3 shows that in October 1987 the . market crash affected major stock markets around the world. These cases show that dramatic movements in one stock market can have a powerful impact on markets of very different sizes and structures across the globe. Do these periods of highly correlated stock market movements provide evidence of contagion Before answering this question it is necessary to def ine contagion. There is widespread disagreement about what this term entails and this paper utilizes a narrow definition that has historically been used in this This paper defines contagion as a significant increase in cross-market linkages after a shock to one country or group of countries .2 According to Forbes and Rigobon are both from the Sloan School of Management at the .