Mardi Dungey

University of Tasmania · School of Economics and Finance

This paper examines the systematic contagion effects of the global financial crisis of 2007–2009 on the world’s largest advanced and emerging equity markets, using the conditional factor model of Dungey and Renault (2018) and and the adjusted correlation coefficient approach of Forbes and Rigobon (2002). Our findings indicate that when applying the...

An increasing involvement of the Asian market in the global context plays a fundamental role in spreading shocks across the financial system. This paper examines the extent of vulnerability across Asian equity markets and the United States (US) equity market by distinguishing between spillovers and contagion. Spillovers are detected using a general...

We investigate the contribution of network exposure to both shock transmission and absorption. Our data sample comprises 45 economies for the period 1998–2018 to which we apply spatial econometric estimation technique. Our empirical findings show that both network intensity and interconnectedness in the financial system have impact on increasing ne...

Recent advances in high-frequency financial econometrics enable us to characterize which components of the data generating processes change in crisis, and which do not. This paper introduces a new statistic which captures large discontinuities in the composition of a given price series. Monte Carlo simulations suggest that this statistic is useful...

We investigate the systemic importance of U.S. non-financial corporations and analyse the firm-specific characteristics that identify systemically important non-financial firms. We compute two firm-specific measures of systemic risk for 1145 non-financial corporations and confirm that these firms are both vulnerable to systemic shocks and contribut...

We analyse the stability of the cross-market shock transmission mechanism between banks and sovereign bonds during the Eurozone sovereign debt crisis for crisis-hit periphery countries and Germany. We also examine the shock propagation of banking shocks and sovereign bond shocks between domestic and external markets. Using a Markov-switching framew...

In this paper we establish empirical evidence for the relationship between the systematic jump betas of financial institutions and two types of systemic risk index: a capital shortfall index and a interconnectedness index. Using high‐frequency data for US financial sector stocks, we show that equity market jumps are positively related to capital sh...

This paper develops a methodology for detecting and measuring contagion using high‐frequency data which disentangles continuous and discontinuous price movements. We demonstrate its finite‐sample properties using Monte Carlo simulation, focusing on the empirically plausible parameter space. Decisions to extend the role of financial regulation aroun...

By harnessing the changes in jump behavior of high frequency currency market data we construct a means of detecting stress dates in exchange rates. Using 5-minute data for Asian currencies covering more than 20 years from 1996-2018 we align the identified stress dates to domestic and international economic and political events or exchange rate mana...

As China becomes more closely entwined with the USA, positive shocks in the USA translate into positive outcomes for China, but any gain to the USA is less clear. We develop a framework of two interacting open economies in which Chinese gross domestic product per capita moves towards long‐run convergence with the USA. Although the short‐run interac...

This paper presents evidence on the macroeconomic adjustment of a resource‐rich country to a resource boom using the effects of Chinese industrialization on Australia from 1988 to 2016. An SVAR model is specified, incorporating a proxy for Chinese resource demand and commodity prices to identify the effects of commodity supply and demand shocks on...

This paper develops a means of visualizing the vulnerability of complex systems of financial interactions around the globe using Neural Network clustering techniques. We show how time-varying spillover indices can be translated into two dimensional crisis maps. The crisis maps have the advantage of showing the changing paths of vulnerability, inclu...

It tracks progress through the 1997–1998 Asian financial crisis, the 2008 global financial crisis, and the European debt crisis. The study shows that developed markets can act as a bridge for emerging markets to access the global financial network, overcoming the information asymmetry that exists between emerging markets and the global network. The...

A new class of integer time series models is proposed to capture the dynamic transmission of count processes over time. The approach extends existing integer mixed autoregressive-moving average models (INARMA) by allowing for shifts in the dynamics of the count process through regime changes, referred to as a threshold integer autoregressive-moving...

Crises in the banking and sovereign debt sectors give rise to heightened financial fragility. Of particular concern is the development of self-fulfilling feedback loops where crisis conditions in one sector are transmitted to the other sector and back again. We use time-varying tests of Granger causality to demonstrate how empirical evidence of con...

We assess the changing nature of the relationships between financial institutions and sovereigns globally using a weighted, directed network of CDS spreads. The framework includes both the strength and direction of the links in the network, allowing us to formally test for evidence on changes in the completeness of the network, for contagion effect...

The ability of the banking sector to absorb unexpected news is critical to its ability to disseminate relevant information to the financial markets and real economy. Using high frequency financial data and quantile regression techniques we characterise some stylised facts about standard betas, diffusion betas and jump betas and the relationships be...

This paper introduces multiple correspondence analysis (MCA) to the literature on financial product choice. MCA is a useful way of assessing the typology of actual or potential consumers, which can then be used to assess the extent to which existing products cover consumer needs. Given the importance of the financial inclusion agenda, this provides...

Using high-frequency stock returns in the Indian banking sector, we find that the beta on jump movements substantially exceeds that on the continuous component, and that the majority of the information content for returns lies with the jump beta. We contribute to the debate on strategies to decrease systemic risk, showing that increased bank capita...

We show that failing to correct for both sample selection and endogeneity bias leads to an under-estimate of the importance of mortgage price in determining the mortgage product a household selects. With proprietary, loan-level data from a major Australian mortgage provider we study interest rate determination, loan size and mortgage product choice...

We investigate the effects of the increasing importance of ASEAN-4 and NIE-4 economies in global trade for the transmission of shocks using a structural VAR framework. We specifically account for time variation, using the changing trade links to provide a means of identifying the propagation of economic shocks and spillovers across the US, EU and A...

We extend existing theoretical frameworks describing electricity markets where each generator provides a Market Operator (MO) with a supply schedule in advance. The MO combines these with demand forecasts to produce equilibrium prices and instructs firms on their dispatch. We incorporate the possibility that generating firms may rebid (or revise) t...

We propose a new nonparametric test to identify mutually exciting jumps in high frequency data. We derive the asymptotic properties of the test statistics and show that the tests have good size and reasonable power in finite sample cases. Using our mutual excitation tests, we empirically characterize the dynamics of financial flights in forms of fl...

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We measure systemic risk via the interconnections between the risks facing both financial and real economy firms. SIFIs are ranked by building on the Google PageRank algorithm for finding closest connections. For a panel of over 500 US firms over 2003-2011 we find evidence that intervention programs (such as TARP) act as circuit breakers in crisis...

Using a network approach we identify critical sectors for 49 economies. Wholesale trade is dominant for over half the countries, but increasingly R&D activities have an equivalent importance. Recognizing R&D as critical urges caution against disinvesting in this sector.

Identifying contagion effects during periods of financial crisis is known to be complicated by the changing volatility of asset returns during periods of stress. To untangle this we propose a GARCH (generalized autoregressive conditional heteroskedasticity) common features approach, where systemic risk emerges from a common factor source (or indeed...

Trend GDP and output gaps play an important role in fiscal and monetary policy formulation, often including the need for forecasts. In this article, we focus on forecasting trend GDP and output gaps with Beveridge-Nelson trend-cycle decompositions trend-cycle decompositions and investigate how these are affected by assumptions concerning correlated...

We provide empirical evidence on the degree of systemic risk in Australia before, during and after the global financial crisis. We calculate a daily index of systemic risk from 2004 to 2013 in order to understand how real economy firms influence the outcomes for the rest of the economy. This is done via a mapping of the interconnectedness of the fi...

Using high frequency data we decompose the time-varying beta for stocks into beta for continuous systematic risk and beta for discontinuous systematic risk. Estimated discontinuous betas for S&P500 constituents over 2003-2011 generally exceed the corresponding continuous betas. Smaller stocks are more sensitive to discontinuities than their larger...

Using high-frequency data, we decompose the time-varying beta for stocks into beta for continuous systematic risk and beta for discontinuous systematic risk. Estimated discontinuous betas for S&P500 constituents between 2003 and 2011 generally exceed the corresponding continuous betas. We demonstrate how continuous and discontinuous betas decrease...

When monetary policy surprises financial markets, yields change but identifying the effects of these surprises on the yield curve is not a trivial exercise. Identification often involves assuming either that policy shocks are different to those on other news days (identification via heteroskedasticity) or, that they are the same (homogeneity). Thes...

This paper presents a new assessment of the exposure of European firms to exchange rate fluctuations which takes into account the potential common drivers of exchange rates and equity market conditions. Using monthly data for European firms from 1999 to 2011, we assess the impact of unexpected fluctuations in the USD, JPY, GBP and CHF against the E...

Policy makers aim to avoid banking crises, and although they can to some extent control domestic conditions, internationally transmitted crises are difficult to tackle. This paper identifies international contagion in banking during the 2007-2009 crisis for 54 economies. We identify three channels of contagion - systematic, idiosyncratic and volati...

Policy makers aim to avoid banking crises, and although they can to some extent control domestic conditions, internationally transmitted crises are difficult to tackle. This paper identifies international contagion in banking during the 2007- 2009 crisis for 50 economies. We identify three channels of contagion - systematic, idiosyncratic and volat...

Investors wishing to achieve a particular level of diversification may be misled on how many stocks to hold in a portfolio by assessing the portfolio risk at different data frequencies. High frequency intradaily data provide better estimates of volatility, which translate to more accurate assessment of portfolio risk. Using 5-min, daily and weekly...

We shed new light on the role of borrower characteristics in mortgage product choice, and how these are impacted by regulatory capital requirements. Using rich loan-level data from the Australian market, we analyse the borrower idiosyncratic risk effects on the choice between variable-rate mortgages and other mortgages with reduced initial payments...

The contribution of international and domestic shocks to macroeconomic outcomes in Asian countries is of significant domestic policy importance. This paper applies a Structural Vector AutoRegressive (SVAR) model to Singapore, Thailand, the Philippines, Malaysia and Indonesia. We show the contribution of foreign shocks to domestic output and inflati...

Detecting contagion during financial crises requires demarcation of crisis periods. This paper presents a method for endogenous dating of both the start and fnish of crises, coupled with the statistical detection of contagion effects. We couple smooth transition functions with structural GARCH to identify both features of markets in crisis, and pro...

Detecting contagion during financial crises requires the demarcation of crisis periods. We develop a method for endogenously dating both the start and finish of crises, along with measuring contagion effects. Identification is achieved by coupling smooth transition functions with structural GARCH. In an application to US equity, bond and REIT retur...

Financial crises are high cost events which can transmit across international borders. Using data from 1883 to 2008, this article develops a means of mapping changes in the degree of international synchronisation of banking and currency crises through a formal concordance index. This index specifically accounts for the typically low incidence and p...

Financial crises are high cost events which can transmit across international borders. Using data from 1883 to 2008, this article develops a means of mapping changes in the degree of international synchronisation of banking and currency crises through a formal concordance index. This index specifically accounts for the typically low incidence and p...

Stock market rises and asset price inflation in ASEAN economies have raised the question of whether monetary authorities in these economies should act pre-emptively against these rising trends to prevent impending financial crises. Using structural vector error correction models (SVECMs) which incorporate mixed data characteristics, we examine the...

This paper extracts measures of monetary policy surprises for Australia, Canada and the United States using a latent factor framework. We distinguish monetary policy surprises which occur when central banks report new assessments of the economy (or do not reinforce changes expected by market assessments) from those when policy makers appear to chan...

We propose a new semiparametric autoregressive duration (SACD) model, which incorporates the parametric and nonparametric estimators of the conditional duration in a multiplicative way. Asymptotic properties for this combined estimator are presented. The empirical application to the transaction duration of the US 2-Year Treasury note shows the outp...

The global financial crisis (2007-2009) saw sharp declines in stock markets around the world, affecting both advanced and emerging markets. In this paper we test for the existence of equity market contagion originating from the US to advanced and emerging markets during the crisis period. Using a latent factor model, we provide strong evidence of c...

This paper examines the influences of the world's two largest developed economies, namely the USA and the Euro area, on Australia as an exemplar of a small open economy. To do so, we specify and estimate a structural VAR with bilateral linkages between the two large economies, and allow shocks originating in either to affect the Australian economy....

A well-documented property of the Beveridge–Nelson trend–cycle decomposition is the perfect negative correlation between trend and cycle innovations. We show how this may be consistent with a structural model where permanent innovations enter the cycle or transitory innovations enter the trend, and that identification restrictions are necessary to...

Natural disasters are expected exacerbate poverty and inequality, but little evidence exists to support the impact at household level. This article examines the effect of natural disasters on household income, expenditure, poverty and inequality using the Vietnam Household Living Standard Survey in 2008. The effects of a natural disaster on househo...

Empirical modelling of the linkages between the euro area and the USA requires an open economy framework. The methodology proposed in this paper achieves identification of a structural vector error correction model by supplementing restrictions from economic theory with assumptions for the direction of causality in cross-country contemporaneous rel...

This article provides empirical evidence on the effects of Chinese resource demand on the resource-rich natural resource supplier using the example of Australia. A structural VAR model is used to examine the effects of Chinese resource demand, commodity prices and foreign output on the macroeconomy with a formally specified mining and resource expo...

The increasingly intertwined banking and insurance sectors have lead to calls for stronger regulatory oversight of the insurance industry as potentially systemically risky. Ultimately systemic risk impacts the real economy, and this paper measures the risk via interconnectedness of the banking, insurance and real economy firms in the US for 500 fir...

This paper considers the impact of the 2008 short selling bans on the cross-market dynamics of stock indices across a wide range of countries. We measure the transmission of shocks between markets using a modified version of the spillover index of Diebold and Yilmaz (2009). The results show that the transmission of shocks between countries which di...

A well-documented property of the Beveridge-Nelson trend-cycle decomposition is the perfect negative correlation between trend and cycle innovations. We show how this may be consistent with a structural model where trend shocks enter the cycle, or cyclic shocks enter the trend and that identification restrictions are necessary to make this structur...

This article places the data revision model of Jacobs and van Norden (2011)4. Jacobs , J. P. A. M. and van Norden , S. 2011. Modelling data revisions: measurement error and dynamics of “true” values. Journal of Econometrics, 161: 101–9. [CrossRef], [Web of Science ®]View all references within a class of trend-cycle decompositions relating directl...

We propose a simple network-based methodology for ranking systemically important financial institutions. We view the risks of firms - including both the financial sector and the real economy - as a network with nodes representing the volatility shocks. The metric for the connections of the nodes is the correlation between these shocks. Daily dynami...

We develop a model to extract measures of monetary policy surprises from the maturity structure of the yield curve. The model endogenously allows for the fact that the yield curve may either shift or rotate in response to monetary policy shocks. A latent factor model approach with identification through heteroskedasticity harnesses the term structu...

Detecting contagion during financial crises requires the demarcation of crisis periods. We develop a method for endogenously dating both the start and finish of crises, along with measuring contagion effects. Identification is achieved by coupling smooth transition functions with structural GARCH. In an application to US equity, bond and REIT retur...

The basis between spot and future prices will be affected by jump behavior in each asset price, challenging intraday hedging strategies. Using formal cojumping tests this paper considers the cojumping behavior of spot and futures prices in high frequency US Treasury data. Cojumping occurs most frequently at shorter maturities and higher sampling fr...

This paper places the data revision model of Jacobs and van Norden (2011) within a class of trend-cycle decompositions relating directly to the Beveridge-Nelson decomposition. In both these approaches identifying restrictions on the covariance matrix under simple and realistic conditions may produce a smoothed estimate of the underlying series whic...

Government policy to encourage home ownership has a long history in Australia. In 1918, for example, the War Service Homes Act made provision for 45 year loans to ex‐service personnel to facilitate home purchase. Since then, home ownership has been encouraged by a variety of measures. A short and incomplete list includes the non‐taxation of imputed...

Monetary policy affects both real variables, such as employment, unemployment and output and nominal variables such as nominal interest and inflation rates. For close to a decade the principal focus of monetary policy has been on inflation. During a recession, or when one appears imminent, the state of real variables such as GDP growth has been a p...

The term premium is estimated from an empirically coherent open economy VAR model of the UK economy where the model specifically accounts for the mixed nature of the data and cointegration between some variables. Using this framework the estimated negative term premia for 1980-2007 is decomposed into its contributing shocks, where the role of infla...

The misevaluation of risk in securitized financial products is central to understanding the Financial Crisis of 2007-2008. This paper characterizes the evolution of factors affecting collateralized debt obligations (CDOs) based on subprime mortgages. A key feature of subprime-mortgage backed indices is that they are distinct in their vintage of iss...

Time series analysis for the Euro Area requires the availability of sufficiently long historical data series, but the appropriate construction methodology has received little attention. The benchmark dataset, developed by the European Central Bank for use in its Area Wide Model (AWM), is based on fixed-weight aggregation across countries with histo...

The term premium is estimated from an empirically coherent open economy VAR model of the UK economy where the model specifically accounts for the mixed nature of the data and cointegration between some variables. Using this framework the estimated negative term premia for 1980-2007 is decomposed into its contributing shocks, where the role of infla...

Financial market data in crises are usually modelled as possessing com-mon characteristics with non-crisis data with some additional peculiarities. Recent advances in the analytical tools available for high frequency data make it possible to characterise which components of the data generating process change in crisis, and which do not. A set of ne...

This paper models the trading intensity of the US Treasury bond market, which has a unique expandable limit order book that distinguishes it from other asset markets. The results indicate that the trade duration exhibits significant clustering and threshold effects. Further, the time taken to expand the tradable volume, known as ‘workup’, significa...

Monetary and fiscal policy actions are designed to influence eco-nomic outcomes. Their interactions may have important, and some-times contradictory, impacts. This paper incorporates fiscal and mon-etary policy shocks into a small open economy SVAR model of the Australian economy, incorporating identification by combining sign restrictions, exclusi...

The subprime mortgage backed securities market declined dramati-cally before and during the Financial Crisis of 2008. To understand the factors driving its demise we utilise a latent factor model representing common effects, asset rating effects, vintage of issuance effects and idio-syncratic effects -extending the recent representation of CDO pric...

This paper attempts a synthesis of theoretical and empirical work on international financial contagion. Although a professional consensus on the appropriate definitions of contagion has yet to emerge, we document substantial research progress towards this goal. On the empirical front, determining when returns are 'excessive' is a pre-condition for...

The aim of this paper is to model the trading intensity of the US Treasury bond market which has a unique expandable limit order book which distinguishes its structure from other asset markets. An analysis of tick data from the eSpeed database suggests that the US bond market displays a greater degree of clustering in trade durations than is eviden...

We propose an identified structural GARCH model to disentangle the dynamics of financial market crises. We distinguish between the hypersensitivity of a domestic market in crisis to news from foreign non-crisis markets, and the contagion imported to a tranquil domestic market from foreign crises. The model also enables us to connect unobserved stru...

Financial crises often transmit across geographical borders and different asset classes. Modelling these interactions is empirically challenging, and many of the proposed methods give different results when applied to the same data sets. In this book the authors set out their work on a general framework for modeling the transmission of financial cr...

This paper investigates the extent of concordance in financial crises by both asset market and country in six Asian countries over the period 1970-2002. To that purpose we adapt a concordance index to deal with the typically low incidence of financial crises in both bivariate and multivariate settings. We find that in the Asian countries financial...