An Investigation of Multiple Asymmetric Threshold Contagions Effects of U.S. Stock Market to Major Industrialized Countries under Turbulent Economic Conditions
Researchers and academic institutions frequently use
the conventional Threshold AR model. However, the model uses zero or a single
random value as a threshold to convey limited information. This study intends
to explore multiple asymmetric threshold effects of U.S. stock market to five
major industrialized countries during turbulent economic conditions. Daily
stock index returns, ranging from 1998 to 2019, are collected. A three random
thresholds TAR model is built; Four hypotheses are proposed; Grid search
algorithm is programmed; The testing procedure includes: linear and non-linear
unit roots, structural break, likelihood ratio, Wald, and residual diagnoses
are tested. The findings are as follows: The four hypotheses are significant in
most of five major countries except for U.K. and Germany of contagions effects.
The newly proposed multiple TAR model is superior to the traditional TAR model.
During the financial crisis period, the contagions effects are greater, the
threshold effects are significant, and the combined threshold contagions
effects are stronger.
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