Are Financial Crises Alike? (original) (raw)
Related papers
The Contagion Effects of Financial Crises on Stock Markets of Developed Countries
SSRN Electronic Journal, 2000
This study makes an innovative approach, since it applies a set of diversified tests, which have not been used on a joint basis until now, in order to study the contagion effects of financial crises in the stock markets of developed countries. This is particularly important due to the fact that existing literature has so far failed to adequately address the effects of financial crisis on the stock markets of developed countries. Several empirical tests are performed on a joint basis: correlation tests, Kolmogorov-Smirnov tests; extreme value tests; and tests based on the estimation of Cointegrated Vector Autoregressive models. Significant evidence on the existence of contagion effects is provided with regards to the Asia crisis, the Russia crisis and the September 11 crisis, as was previously mentioned in literature. On the other hand, limited evidence is detected regarding the contagion effects on Brazil, Argentina and Mexico.
Contagion in global equity markets in 1998: The effects of the Russian and LTCM crises
The North American Journal of Economics and Finance, 2007
The Russian and LTCM …nancial crises in the second half of 1998 originated in bond markets, but were rapidly transmitted through international equity markets. A multi-factor model of …nancial markets with multiple regimes is used to estimate the transmission e¤ects in equity markets due to global, regional and potentially contagious transmission mechansims during the twin crises. Using a panel of 10 emerging and industrial …nancial markets the empirical results show that contagion is signi…cant and widespread in international equity markets during the LTCM crisis, while its impact is more selective during the Russian crisis. Contagion e¤ects in the equity markets are found to be stronger than those previously noted in the bond markets for this period.
2011
This article investigates the existence of contagion between countries on the basis of an analysis of returns for stock indices over the period 1994 to 2003. The econometrics methodology used is that of multivariate Generalized Autoregressive Conditional Heteroscedasticity (GARCH) family volatility models, particularly the Dynamic Conditional Correlation (DCC) models in the form proposed by Engle and Sheppard (2001). The returns were duly corrected for a series of country-specific fundamentals. The relevance of this procedure is highlighted in the literature by the work of Pesaran and Pick (2003). The results obtained in this article provide evidence favourable for the hypothesis of regional contagion in both Latin America and Asia. As a rule, contagion spread from the Asian crisis to Latin America, but not in the opposite direction.
This research applies a set of diversified tests that have not been used on a joint basis to study the contagion effects of financial crises in the stock markets of developed countries. This is particularly important due to the fact that the existing literature has, so far, failed to adequately address the effects of financial crisis on such markets. Several empirical tests are performed on a joint basis: correlation tests; Kolmogorov-Smirnov tests; extreme value tests; and tests based on the estimation of Cointegrated Vector Autoregressive models. Significant evidence on the existence of contagion effects is provided with regards to the Asia crisis, the Russia crisis and the September 11 crisis. Finally, limited evidence is detected regarding the contagion effects on Brazil, Argentina and Mexico crisis. Resumen Esta investigación aplica un conjunto de pruebas diversificadas que no se han utilizado en forma conjunta para estudiar los efectos de contagio de las crisis financieras en los mercados bursátiles de los países desarrollados. Esto es particularmente importante debido al hecho de que en la literatura existente no se abordan adecuadamente los efectos de las crisis financieras en dichos mercados. Se realizan varias pruebas empíricas en forma conjunta: pruebas de correlación; de Kolmogorov-Smirnov; de valor extremo; y las pruebas basadas en la estimación de modelos de vectores autorregresivos cointegrados. Se muestra evidencia significativa de efectos de contagio durante la crisis asiática, la crisis de Rusia y la crisis del 11 de Septiembre. Porúltimo, los efectos de contagio encontrados durante las crisis en Brasil, Argentina y México son limitados.
EMG Working Paper Series WP-EMG-01-2012 ‘ Global Crises and Equity Market Contagion ’
2012
Using the 2007-09 financial crisis as a laboratory, we analyze the transmission of crises to country-industry equity portfolios in 55 countries. We use a factor model to predict crisis returns, defining unexplained increases in factor loadings and residual correlations as indicative of contagion. We find statistically significant evidence of contagion from US markets and from the global financial sector, but the effects are economically small. By contrast, there has been substantial contagion from domestic equity markets to individual domestic equity portfolios, with its severity inversely related to the quality of countries’ economic fundamentals and policies. This confirms the old “wake-up call” hypothesis, with markets and investors focusing substantially more on countryspecific characteristics during the crisis. JEL No.: F3, G14, G15
Florya Chronicles of Political Economy, 2018
The first aim of the paper is to investigate the interdependence and/or contagion effect of an economic crisis across Turkey, Brazil and Russia as well as some Gulf Cooperation Council countries; Kuwait, Oman, Qatar, and Morocco covering the period from August 2004 to March 2012. The second aim is to present an alternative view on the transmission process of financial crises across the economies via any possible interaction channel between the interdependence effect and contagion. An exchange market pressure index and the outlier test of Favero and Giavazzi (2002) are used in this paper. The estimation results reveal that there are fifteen cases in which the interdependence and the contagion effects could be related to each other. Consequently, it can be suggested that the policy-makers are less likely to prevent the financial crises experienced outside being transmitted to their own country; even if they could exactly predict that, the interdependence effect exists.
International Contagion Effects from the Russian Crisis and the LTCM Near-Collapse
IMF Working Papers, 2002
We examine empirically the episode of extraordinary turbulence in global financial markets during 1998. The analysis focuses on the market assessment of credit risk captured by daily movements in bond spreads for twelve countries. A dynamic latent factor model is estimated using indirect inference to quantify the effects of unanticipated shocks across borders or "contagion," controlling for common global shocks, country-specific shocks and regional factors. The results show that there were substantial international contagion effects resulting from both the Russian and the LTCM crises. The proportion of volatility explained by contagion is not necessarily larger in developing than in developed nations. JEL Classification Numbers:C33, E44, F34
L'entreprise, 2021
This study shall discuss the phenomenon of international transmission of financial shocks, with a special focus on distinguishing between contagion and other similar mechanisms causing the simultaneous occurrence of crises. After an attempt to review the related analytical and empirical literature, we try to test for the presence of contagion from the US financial market towards a selected sample of Middle East and North African markets during the 2008 mortgage crisis, using correlation analysis methodology proposed by (Forbes and Rigobon-2002). The main findings of the study reveal the existence of contagion towards only one market in the sample that is Qatar SE when adjusting for heterskedasticity. Although study results confirm the existence of a spillover effect between the US market and all other markets in the sample, Qatar SE was the most affected, and this can be explained by a high-level of financial integration.
Asset Markets Contagion during the Global Financial Crisis
Multinational Finance Journal, 2013, vol. 17, no. 1/2, pp. 49-76.
This study investigates the contagion effects of the 2007-2009 global financial crisis across multiple asset markets and different regions. It uses daily return data of six asset classes: stocks, bonds, commodities, shipping, foreign exchange and real estate. A robust analysis of financial contagion is provided by estimating and comparing asymmetric conditional correlations among asset markets during stable and turmoil periods. Results provide evidence on the existence of a correlated-information channel as a contagion mechanism among the U.S. stocks, real estate, commodities and emerging Brazilian bond index. The findings also support the decoupling of BRIC equity markets from the crisis, the diversification benefits of shipping and foreign exchange value of the U.S. dollar indices, and the existence of a flight to quality mechanism from risky U.S. assets to German bonds. This evidence has important implications for portfolio diversification strategies and the future work of policymakers.