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The Problem Of Contagion And Its Effect On The Contagion Correlation

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Contagion is defined as the relationship that exists in returns above and afar the economic essentials like exposure to common international risk factors (Cai & Wong, 2010 p. 10). To control the possible effects of frequent exposure to necessities in enhancing the contagion correlation, the research will filter the country’s index returns for familiar exposures. The filtering will define the deviations from the predictable correlation in proceeds based on the economic fundamentals. The research will regress the returns of every nation individually using some variables using a regression model. Testing for the worst return contagion To capture the cross-border contagion in proceeds, the research will utilize the value approach that will test whether the trial observations in the filtered returns are related across nations. Trial observations are the filtered returns in the lower deciles of a nation’s time series allotment over the whole sample period. The research will use the logit model to tackle the problem of contagion by approximating whether a specified nation is more expected to have the worst return in a specified week, restricted to other countries having as well experienced the worst return in the preceding week. The dependent variable is an indicator variable that is set to one in case the local nation index under study has a weekly return in the lower deciles of every weekly proceeds for that nation and zero otherwise (Morrison & White, 2013 p. 645). To evaluate

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