Abstract
By using the Asymmetric Dynamic Conditional Correlation (ADCC) model developed by Cappiello et al. (2006), we investigate how the dynamics of correlations between five emerging countries (Argentina, Chile, Hungary, Russia, and Poland), two emerging regions (Latin America (LAC) and Europe (EU)), and the United States, evolved from January 2004 to September 2011. The main contribution of this study is to examine whether the financial turmoil that originated in US stock market in the aftermath of global financial crisis (2008–2009) can exert contagion effects on emerging equity and sovereign bond markets. We show that there is mean shift in the estimated DCC immediately after the Lehman Brothers failure in September 2008. We refer to this finding as contagion from the United States stock market to emerging equity and sovereign bond markets especially in the emerging LAC region.
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