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Stock Market Interdependence, Contagion, and the U.S. Financial Crisis: The Case of Emerging and Frontier Markets

27 Pages Posted: 17 May 2011 Last revised: 8 Mar 2015

Lalith P. Samarakoon

University of St. Thomas

Date Written: May 1, 2011

Abstract

This paper examines transmission of shocks between the U.S. and foreign markets to delineate interdependence from contagion of the U.S. financial crisis by constructing shock models for partially-overlapping and non-overlapping markets. There exists important bi-directional, yet asymmetric, interdependence and contagion in emerging markets, with important regional variations. Interdependence is driven more by U.S. shocks, while contagion is driven more by emerging market shocks. Frontier markets also exhibit interdependence and contagion to U.S. shocks. Except for Latin America, there is no contagion from U.S. to emerging markets. But there is contagion from emerging markets to the U.S.

Keywords: Interdependence, Contagion, U.S. Financial Crisis, Emerging Markets, Shock Models

JEL Classification: F3, F30, F36, G01, G15

Suggested Citation

Samarakoon, Lalith P., Stock Market Interdependence, Contagion, and the U.S. Financial Crisis: The Case of Emerging and Frontier Markets (May 1, 2011). Journal of International Financial Markets, Institutions and Money, 21: 724-742 (2011). Available at SSRN: https://ssrn.com/abstract=1843393

Lalith P. Samarakoon (Contact Author)

University of St. Thomas ( email )

2115 Summit Ave
St. Paul, MN 55105
United States

HOME PAGE: http://www.stthomas.edu/business/faculty/directory/Samarakoon_Lalith.html

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