No Contagion, Only Interdependence: Measuring Stock Market Comovements

2002/10/01 by Kristin J. Forbes, Roberto Rigobon, Roberto Rigobón · 74 citations
Economics, Econometrics and Finance · #Complex Systems and Time Series Analysis #Econometrics #Economics #Financial economics #Geography #Market Dynamics and Volatility #Monetary Policy and Economic Impact #Monetary economics #Stock (firearms) #Stock market #Stock market crash #Stock market index #Volatility (finance)

paper · doi:10.1111/0022-1082.00494

published in The Journal of Finance 57(5), 2223-2261 (Wiley)

openalex publication_date 2002/10/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/29

Abstract

ABSTRACT Heteroskedasticity biases tests for contagion based on correlation coefficients. When contagion is defined as a significant increase in market comovement after a shock to one country, previous work suggests contagion occurred during recent crises. This paper shows that correlation coefficients are conditional on market volatility. Under certain assumptions, it is possible to adjust for this bias. Using this adjustment, there was virtually no increase in unconditional correlation coefficients (i.e., no contagion) during the 1997 Asian crisis, 1994 Mexican devaluation, and 1987 U.S. market crash. There is a high level of market comovement in all periods, however, which we call interdependence.

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