Wajih Khallouli

The Asian Crisis Contagion: A Dynamic Correlation Approach Analysis

In this paper we are testing for contagion caused by the Thai baht collapse of July 1997. In line with earlier work, shift-contagion is defined as a structural change within the international propagation mechanisms of financial shocks. We adopt Bai and Perrons (1998) structural break approach in order to detect the endogenous break points of the pair-wise time-varying correlations between Thailand and seven Asian stock market returns. Our approach enables us to solve the misspecification problem of the crisis window. Our results illustrate the existence of shift-contagion in the Asian crisis caused by the crisis in Thailand.

Testing for “Contagion” of the Subprime Crisis on the Middle East and North African Stock Markets: A Markov Switching EGARCH Approach

In this paper, we investigate whether the recent financial turmoil which arose in the United States has contaminated the Middle East and North African countries (MENA). In contrast to Lagoard-Segot and Lucey (2009), we try to identify the existence of pure contagion (Masson, 1999) rather than shift-contagion (Rigobon, 2003). Then, we explicitly define financial “contagion” in accordance with Eichengreen et al. (1996) and we extend the Cerra and Saxena (2002) methodology by using a Markov-Switching EGARCH model introduced by Henry (2009) in order to identify contaminated MENA stock markets. Our results provide evidence of a persistence of recession characterised by low mean/high variance regimes which coincides with the third phases of the subprime crisis. In addition, there is evidence of mean and volatility contagion in MENA stock markets caused by the US stock market.