Testing for Financial Contagion between Developed and Emerging Markets During the 1997 East Asian Crisis
Brunel Business School, Economics and Finance Working Papers No. 05-08
International Journal of Finance & Economics, (2005), vol. 10(4), pages 359-367
17 Pages Posted: 25 Mar 2003 Last revised: 18 May 2009
Date Written: April 1, 2005
Abstract
In this paper we examine whether during the 1997 East Asian crisis there was any contagion from the four largest economies in the region (Thailand, Indonesia, Korea and Malaysia) to a number of developed countries (Japan, UK, Germany and France). Following Forbes and Rigobon (2002), we test for contagion as a significant positive shift in the correlation between asset returns, taking into account heteroscedasticity and endogeneity bias. Furthermore, we improve on earlier empirical studies by carrying out a full sample test of the stability of the system that relies on more plausible (over)identifying restrictions. The estimation results provide some evidence of contagion, in particular from Japan (the major nternational lender in the region), which drastically cut its credit lines to the other Asian countries in 1997.
Keywords: Contagion, Financial crises, Conditional Correlation
JEL Classification: F30, G15
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
No Contagion, Only Interdependence: Measuring Stock Market Co-Movements
By Kristin J. Forbes and Roberto Rigobon
-
Transmission of Volatility between Stock Markets
By Mervyn King and Sushil Wadhwani
-
Asymmetric Correlations of Equity Portfolios
By Joseph Chen and Andrew Ang
-
Correlations in Price Changes and Volatility Across International Stock Markets
By Yasushi Hamao, Ronald W. Masulis, ...
-
Volatiltiy and Links between National Stock Markets
By Mervyn King, Enrique Sentana, ...
-
A New Approach to Measuring Financial Contagion
By Kee-hong Bae, George Andrew Karolyi, ...
-
Why Do Markets Move Together? An Investigation of U.S.-Japan Stock Return Comovements Using Adrs
-
A New Approach to Measuring Financial Contagion
By Kee-hong Bae, George Andrew Karolyi, ...
-
By Wenling Lin, Robert F. Engle, ...