Interdependence and Contagion in Global Asset Markets

34 Pages Posted: 18 Oct 2012

See all articles by John Beirne

John Beirne

Asian Development Bank

Jana Gieck Bricco

Goethe University Frankfurt - Faculty of Economics and Business Administration; International Monetary Fund (IMF)

Date Written: October 2012


This paper provides an empirical assessment of interdependence and contagion across three asset classes (bonds, stocks, and currencies) for over 60 economies over the period 1998 to 2011. Using a global VAR, we test for changes in the transmission mechanism – both within and cross-market changes - during periods of turbulence in financial markets. Our results suggest that within-market effects over the sample period for each asset market are highly significant for advanced economies. For emerging economies, these within-market effects mostly apply to the equity market. Contagion effects within-market are most notable in Latin America and Emerging Asia for equities. Cross-market contagion is identified from global bonds to local stocks in Central and Eastern Europe, but from global stocks to domestic bonds in the case of advanced economies. Impulse responses indicate that in crisis times, the origin of the shock plays an important role on the nature of the global transmission. The evidence suggests that in times of financial crisis, shocks that emanate in the US, particularly equity shocks, lead to risk aversion by investors in equities and currencies globally and in some emerging market bonds. Euro area shocks tend to have the most significant effect within the bond market. Our results have implications for policymakers in terms of understanding financial exposures and vulnerabilities and for investors in relation to portfolio rebalancing and the construction of portfolio diversification strategies across asset classes in crisis and non-crisis times.

Keywords: Asset markets, contagion, Global VAR

JEL Classification: F30, G15

Suggested Citation

Beirne, John and Bricco, Jana and Bricco, Jana, Interdependence and Contagion in Global Asset Markets (October 2012). ECB Working Paper No. 1480, Available at SSRN: or

John Beirne (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila

Jana Bricco

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )


International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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