Correlation Analysis of Financial Contagion: What One Should Know Before Running a Test



Table 1: Hong Kong crisis - Conditional and Fisher tests

country

P

∕'

λ

Fisher -⅛ — 1
_____________er_________

Indonesia

0.31

0.60

*

9.7

Korea

0.16

0.07

+

_

38.7

Malaysia

0.20

0.43

64.5

_

24.8

Philippines

0.22

0.66

2.6

**

19.8

Singapore

0.36

0.76

1.5

**

6.5

Thailand

0.11

0.01

+

_

88.6

Argentina

0.26

0.21

+

_

13.5

Brazil

0.20

0.31

30,941.3

_

23.1

Mexico

0.29

0.45

49.3

_

10.8

Russia

0.19

0.53

13.8

*

26.9

“USA

0.15

0.26

254.0

_

42.1

Japan

0.28

0.33

7486.5

_

11.4

Germany

0.24

0.63

4.4

**

16.8

France

0.17

0.66

1.2

**

32.3

United Kingdom

0.17

0.63

2.3

**

33.0

Italy

0.00

0.63

0.00

**

732,762

Canada

0.27

0.37

389.8

_

12.8

Note: p and p are estimated correlation coefficients of two-day rolling
averages of returns in the tranquil and crisis periods;
λ is the threshold
variance ratio as defined in the text (for
S = 8.72). The fourth column
reports the results of the Fisher test: * (**) indicates that the hypothesis
P'P'P is rejected at the 5 (1) per cent significance level.

Table 2: Estimations of the variance ratio for Hong Kong

У = У

У

У

Cross section:

G 7

2.8

2.9

3.2

Full sample

2.4

2.6

2.6

World stock market index

3.6

3.0

4.5

Principal components:

First component

7.1

First two components

7.0

First five components

4.1

26



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