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Contagion: Evidence from the Bond Market

George Theocharides

Cyprus International Institute of Management (CIIM)

September 5, 2007

Using Treasury and corporate bond market data, I examine the propagation of firm-specific shocks as well as market-wide shocks between 1995-2003, testing the implications of previously proposed channels of contagion. I find little support for the economic fundamental hypothesis. Consistent with the information transmission and liquidity-shock hypotheses, I find evidence of flight to quality during the event periods. However, in contrast to the prediction of the liquidity shock hypothesis, the corporate bond market seems to be more liquid during event periods. These findings are more in favor of the information channel as a means of inducing contagion.

Number of Pages in PDF File: 49

Keywords: Contagion, Financial Crisis, Flight to Quality, Information Flow, Bond Market

JEL Classification: G14, G22, G33

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Date posted: October 3, 2005  

Suggested Citation

Theocharides, George, Contagion: Evidence from the Bond Market (September 5, 2007). Available at SSRN: http://ssrn.com/abstract=811548 or http://dx.doi.org/10.2139/ssrn.811548

Contact Information

George Theocharides (Contact Author)
Cyprus International Institute of Management (CIIM) ( email )
P.O Box 20378
Nicosia, CY-2151
+357-22-462228 (Phone)
+357-22-331121 (Fax)
HOME PAGE: http://www.ciim.ac.cy/georghio
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