Is There Any Contagion in Emerging Debt Markets?

Abstract:     
This paper tests for contagion in emerging debt markets following Russia and Argentina’s government defaults. Using techniques that have been previously suggested for contagion tests in stock markets we find that debt and stock markets respond differently to financial crises. Volatilities and correlations do not increase significantly during default episodes and no evidence supporting spillover effects is found. However, we find evidence of contagion in extreme returns during both crisis periods as well as in the entire sample period. We conclude that contagion in emerging bond markets is more likely driven by their high linkages than by crisis episodes.

Keywords: contagion, credit events, emerging markets, sovereign debt, volatility spillover

JEL Classification: F21, F36, F37, G11, G15

working papers series