Impulse Response to a Shock on the Correlation between Three Major Stock Indices : The Lehman Brothers Bankruptcy

Résumé 0

We proceed to an impulse-response analysis on the conditional correlations between three stock indices returns: the S&P 500, the ftse 100 and the Nikkei 225. As a first step, a general asymmetric dynamic conditional correlation ( ga-dcc) model proposed by Cappiello, Engle and Sheppard [2006] is estimated. In a second step, we quantify the impact of two historical shocks on subsequent conditional correlations along the lines of Koop, Pesaran and Potter [1996]. The first chosen shock marks the beginning of the subprimes crisis and occurs on 08/14/2007. The second one corresponds to 09/16/2008, just after the bankruptcy of Lehman Brothers. Our estimates show that these two historical shocks had rather different impacts on conditional correlations. Classification JEL: C22, C32, E17, G15.