- 電気通信大学紀要 (ISSN:09150935)
- vol.17, no.1, pp.21-32, 2005-01-31
In this article, we examine whether bad news on a company impacts on the correlations betweenthe equity return of the company and those of other companies based on the Japanese equity datain 1997, when some of major financial institutions bankrupted. We define "contagion" or "exclusion" as a significant increase or decrease, respectively, in the correlation after the announcement of thebad news. Our major findings are (1) whether the effect of the bad news is "contagion" or "exclusion" basically depends upon the nature of the bad news, (2) heteroskedasticity in thecorrelation has some influence on the identification of the bad news effect and it is important toadjust the heteroskedasticity in the correlation to correctly identify the effect.