Market Integration and Contagion

35 Pages Posted: 26 Feb 2003 Last revised: 31 Oct 2010

See all articles by Geert Bekaert

Geert Bekaert

Columbia Business School - Finance and Economics

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Angela Ng

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: February 2003

Abstract

Contagion is usually defined as correlation between markets in excess of what would be implied by economic fundamentals; however, there is considerable disagreement regarding the definitions of the fundamentals, how the fundamentals might differ across countries, and the mechanisms that link the fundamentals to asset returns. Our research takes, as a starting point, a two-factor model with time-varying betas that accommodates various degrees of market integration between different markets. We apply this model to stock returns in three different regions: Europe, South-East Asia, and Latin America. In addition to providing new insights on contagion during crisis periods, we document patterns through time in world and regional market integration and measure the proportion of volatility driven by global, regional, and local factors.

Suggested Citation

Bekaert, Geert and Harvey, Campbell R. and Ng, Angela, Market Integration and Contagion (February 2003). NBER Working Paper No. w9510. Available at SSRN: https://ssrn.com/abstract=383421

Geert Bekaert (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Campbell R. Harvey

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)
919-660-8030 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Angela Ng

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong

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