Bad Bad Contagion

45 Pages Posted: 28 Sep 2019

See all articles by Juan M. Londono

Juan M. Londono

Board of Governors of the Federal Reserve System

Multiple version iconThere are 3 versions of this paper

Date Written: September 6, 2019


This paper proposes a new measure of contagion as the coincidence of large left-tail events in the idiosyncratic disturbances of international stock returns after controlling for their exposure to a global factor. Episodes of bad contagion, especially those involving a large number of countries, are followed by a significant drop in international stock returns. This predictability pattern can be understood as an international transmission effect, as bad contagion only affects countries that did not experience tail events. In addition, the negative effect of bad contagion spills over to real growth, sovereign default risk, and financial stability indicators.

Keywords: International stock markets, interconnectedness, integration, transmission, spillovers

JEL Classification: G15, F36, F65

Suggested Citation

Londono-Yarce, Juan-Miguel, Bad Bad Contagion (September 6, 2019). Available at SSRN: or

Juan-Miguel Londono-Yarce (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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