Country Transparency and the Global Transmission of Financial Shocks
39 Pages Posted: 31 Jul 2013
Date Written: July 2013
This paper considers the role of country-level opacity (the lack of availability of information) in amplifying shocks emanating from financial centers. We provide a simple model where, in the presence of ambiguity (uncertainty about the probability distribution of returns), prices in emerging markets react more strongly to signals from the developed market, the more opaque the emerging market is. The second contribution is empirical evidence for bond and equity markets in line with this prediction. Increasing the availability of information about public policies, improving accounting standards, and enhancing legal frameworks can help reduce the unpleasant side effects of financial globalization.
Keywords: External shocks, Financial systems, Emerging markets, Stock markets, Bond markets, Transparency, Economic models, transparency, emerging markets, transmission of global financial shocks, bond, stock returns, equity markets, bond spreads, bond returns, financial economics, currency crisis, bonds, financial markets, stock markets, equity market, bond spread, bond markets, bond yields, currency crises, financial systems, financial market, sovereign bond, stock market, financial globalization, stock prices, international capital, financial stability, financial contagion, emerging markets stock, stock options, stock price, international financial markets, crowding out, currency risk, emerging mar
JEL Classification: G12, G15
Suggested Citation: Suggested Citation