Abstract

http://ssrn.com/abstract=241634
 
 

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A New Approach to Measuring Financial Contagion


Kee-Hong Bae


York University - Schulich School of Business

George Andrew Karolyi


Cornell University - Johnson Graduate School of Management

Rene M. Stulz


Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

August 2000

Dice Center Working Paper No. 2000-13

Abstract:     
This paper proposes a new approach to evaluate contagion in financial markets. Our measure of contagion captures the co-incidence of extreme return shocks across countries within a region and across regions that cannot be explained by linear propagation models of shocks. We characterize the extent of contagion, its economic significance, and its determinants using a multinomial logistic regression model. Applying our approach to daily returns of emerging markets during the 1990s, we find that contagion, when measured by the co-incidence within and across regions of extreme return shocks, is predictable and depends on regional interest rates, exchange rate changes, and conditional stock return volatility. Evidence that contagion is stronger for extreme negative returns than for extreme positive returns is mixed.

Number of Pages in PDF File: 56

JEL Classification: G10,G15,F30

working papers series


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Date posted: November 8, 2000  

Suggested Citation

Bae, Kee-Hong and Karolyi, George Andrew and Stulz, Rene M., A New Approach to Measuring Financial Contagion (August 2000). Dice Center Working Paper No. 2000-13. Available at SSRN: http://ssrn.com/abstract=241634 or http://dx.doi.org/10.2139/ssrn.241634

Contact Information

Kee-Hong Bae
York University - Schulich School of Business ( email )
4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext) 20248 (Phone)
416-736-5687 (Fax)
George Andrew Karolyi
Cornell University - Johnson Graduate School of Management ( email )
Ithaca, NY 14853
United States
Rene M. Stulz (Contact Author)
Ohio State University (OSU) - Department of Finance ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States
HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
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