This paper deals with the theme of contagion in financial markets. At this aim, we develop a model based on Mixed Poisson Processes to describe the abnormal returns of financial markets of two considered countries. In so doing, the article defines the theoretical conditions to be satisfied in order to state that one of them – the so-called leader – exercises contagion on the others — the followers. Specifically, we employ an invariant probabilistic result stating that a suitable transformation of a Mixed Poisson Process is still a Mixed Poisson Process. The theoretical claim is validated by implementing an extensive simulation analysis grounded on empirical data. The countries considered are the U.S. (as the leader) and Italy (as the follower) and the period under scrutiny is very large, ranging from 1970 to 2014
Does the U.S. exercise contagion on Italy? A theoretical model and empirical evidence / Cerqueti, Roy; Fenga, Livio; Ventura, Marco. - In: PHYSICA. A. - ISSN 0378-4371. - 499:(2018), pp. 436-442. [10.1016/j.physa.2018.02.073]
Does the U.S. exercise contagion on Italy? A theoretical model and empirical evidence
Roy Cerqueti
;Marco Ventura
2018
Abstract
This paper deals with the theme of contagion in financial markets. At this aim, we develop a model based on Mixed Poisson Processes to describe the abnormal returns of financial markets of two considered countries. In so doing, the article defines the theoretical conditions to be satisfied in order to state that one of them – the so-called leader – exercises contagion on the others — the followers. Specifically, we employ an invariant probabilistic result stating that a suitable transformation of a Mixed Poisson Process is still a Mixed Poisson Process. The theoretical claim is validated by implementing an extensive simulation analysis grounded on empirical data. The countries considered are the U.S. (as the leader) and Italy (as the follower) and the period under scrutiny is very large, ranging from 1970 to 2014File | Dimensione | Formato | |
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