Contagion testing in frontier markets under alternative stressful S&P 500 market scenarios

Scott Mark Romeo Mahadeo*, Reinhold Heinlein, Gabriella Legrenzi

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

We use alternative approaches to identify stable and stressful scenarios in the S&P 500 market, to offer a new perspective for constructing contagion tests in recipient frontier markets vulnerable to disturbances from this source market. The S&P 500 market is decomposed into discrete conditions of: (1) tranquil versus turbulent volatility; (2) bull versus bear market phases; (3) normal periods versus asset bubbles and crashes. Based on these identified scenarios, we use various co-moment contagion tests to analyse the changing relationship between the S&P 500 market and major frontier markets in the Caribbean region that have prominent trade related exposure to the US. Our findings show that, outside of the events of the Great Recession, the Caribbean stock exchanges are largely independent of the S&P 500 market.
Original languageEnglish
Article number101629
Number of pages14
JournalThe North American Journal of Economics and Finance
Volume60
Early online date14 Jan 2022
DOIs
Publication statusEarly online - 14 Jan 2022

Keywords

  • contagion
  • correlation
  • crisis
  • S&P 500
  • stock market
  • volatility

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