Identification and measurement of contagion effects among main markets in financial crisis

In this paper,a markov independent switching dcc (mis-dcc) model featuring easy estimation and advantageous analysis of the contagion effects among markets in crisis is proposed on basis of ms-dcc and is-dcc models and then employed to analyze the contagion effects among five major stock markets before and after american subprime mortgage crisis. the research findings are as follows. firstly,the contagion effects of crisis shows different stages,thus the mistake to consider only pre-crisis and post-crisis periods is avoided. secondly,the crisis usually evolves into a systemic one in the globalized environment,as a result of which it is difficult for any open market to avoid the impacts of crisis and international coordination is required to cope with the crisis. thirdly,the smoothed probability derived from markov independent switching dcc (mis-dcc) model enables more objective and accurate identification of negative impacts on markets and many uncertain factors may cause frequent switching between different regimes in the early stage of crisis. moreover,the influence degree of crisis on dynamic correlation among markets is presented. © 2013 pakistan journal of statistics.