Abstract
This paper proposes a modeling framework for the study of changes in cross-market comovement conditional on volatility regimes. Methodologically, we extend the Dynamic Conditional Correlation multivariate GARCH model to allow the dynamics of correlations to depend on asset variances through a threshold structure. The empirical application of our model to a sample of international stock markets in 1994-2011 indicates that the periods of market turbulence are associated with an increase in cross-market comovement. The modeling framework proposed in the paper represents a useful tool for the study of market contagion.
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