Business Administration Faculty Publications

Regional Volatility Spillovers and Political Instability: A GARCH-DCC with Markov Switching Approach

Document Type

Article

Publication Date

2020

Journal Title

Academy of Economics and Finance Journal

ISSN

2693-4841

Volume

11

Issue

1

First Page

93

Last Page

110

Article Number

11

Abstract

Market linkages are investigated by exploring the possibility of financial contagion from Brazil to five Latin American countries following the presidential election of Dilma Rousseff in 2014. A GARCH-DCC framework is employed to estimate the variance-covariance transmission mechanism. By means of both the Kolmogorov-Smirnov test and a Markov Switching Dynamic Regression (MSDR), an increase in conditional correlations between Brazil and five Latin American countries is found, suggesting a shift in the long run relationship and evidence of financial contagion.

Keywords

volatility spillover, GARCH-DCC, Markov Switching, financial contagion

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