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Analysis of the volatility's dependency structure during the subprime crisis

Pontes de Arruda, Bruno and Valls Pereira, Pedro L. (2013) Analysis of the volatility's dependency structure during the subprime crisis. Applied Economics, 45 (36). pp. 5031-5045. ISSN 0003-6846

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Identification Number: 10.1080/00036846.2013.815311

Abstract

In this article, we test the hypothesis of contagion amongst sectors within the United States' economy during the subprime crisis. The econometric methodology applied here is based on the dynamic conditional correlation model proposed by Engle (2002). Further, we applied several Lagrange multiplier (LM)-robust tests to test whether there were structural breaks in series' dependency structures during the period of interest. Events theoretically classified as relevant to the crisis upshots as well as the interactions between the moments of the series were used as indicator functions to the referred structural breaks. The main conclusion of this study is that one can indeed observe contagion within almost all pairs of sectors indices. Thus, we conclude that the dependency structure of the sectors of interest has faced structural changes during the years of 2007 and 2008. Hence, diversification strategies as well as the risk analysis inherent to the portfolios management may have been drastically affected.

Item Type: Article
Official URL: http://www.tandfonline.com/loi/raec20#
Additional Information: © 2013 Taylor & Francis
Divisions: Finance
Subjects: H Social Sciences > HG Finance
JEL classification: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation and Selection
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
Sets: Departments > Finance
Collections > Economists Online
Date Deposited: 16 Sep 2013 09:29
Last Modified: 20 Mar 2019 02:13
Funders: CNPq
URI: http://eprints.lse.ac.uk/id/eprint/52605

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