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

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