A statistical procedure for testing financial contagion

GARDINI, ATTILIO; Department Of Statistical Sciences-University Of Bologna & DE ANGELIS, LUCA; Department Of Statistical Sciences-University Of Bologna
The aim of the paper is to provide an analysis of contagion through the measurement of the risk premia disequilibria dynamics. In order to discriminate among several disequilibrium situations we propose to test contagion on the basis of a two-step procedure: in the first step we estimate the preference parameters of the consumption-based asset pricing model (CCAPM) to control for fundamentals and to measure the equilibrium risk premia in different countries; in the second step...