This paper contributes to the literature by extending the interpretation of financial contagion beyond that of the market correlation approach popularised by Forbes and Rigobon (2002). Contagion is explored from the perspective of its impact on the conditional sector-risk Beta of the African Emerging Market natural resources sector. A multi-factor CAPM model is developed within a DCC-MGARCH framework to estimate time-varying Beta. We find that this reacts in different ways to different contagion events. It rose by a statistically significant 0.058 (an 8% increase) in response to the euro-zone crisis. However, with the exception of South Africa, the 2007–09 crisis was found to have no significant impact on Beta. We speculate that the differences found can be attributed to the different ways in which individual contagion events impact on individual markets. From this we conclude that ‘one size fits all’ correlations-based contagion analysis can often hide as much as it reveals.
Bibliographical noteNOTICE: this is the author’s version of a work that was accepted for publication in Research in International Business and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Research in International Business and Finance, Vol. 45. pp. 54-61 (2017) DOI: 10.1016/j.ribaf.2017.07.131
© 2017, Elsevier. Licensed under the Creative Commons AttributionNonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
- Financial crisis
- Conditional beta
- African emerging markets