How Do Crises Spread? Evidence from Accessible and Inaccessible Stock Indices
58 Pages Posted: 30 Oct 2002
Date Written: January 2005
We provide empirical evidence that stock market crises are spread globally through asset holdings of international investors. By separating emerging market stocks into two categories, those eligible for purchase by foreigners (accessible) and those that are not (inaccessible), we estimate and compare the degree to which accessible and inaccessible stock index returns co-move with the crisis country index returns. Our results show greater co-movement during high volatility periods, especially for accessible stock index returns, suggesting that crisis spread through the asset holdings of international investors rather than through changes in fundamentals.
Note: Previously titled "Are Investors Responsible for Stock Market Contagion?"
Keywords: crises, contagion, limits to arbitrage
Suggested Citation: Suggested Citation