Financial Market Contagion in the Asian Crisis

Abstract

This paper tests for evidence of contagion between the financial markets of Thailand, Malaysia, Indonesia, Korea, and the Philippines. Cross-country correlations among currencies and sovereign spreads are found to increase significantly during the crisis period, whereas the equity market correlations offer mixed evidence. A set of dummy variables using daily news is constructed to capture the impact of own-country and cross-border news on the markets. After controlling for own-country news and other fundamentals, the paper shows evidence of cross-border contagion in the currency and equity markets.

Keywords: WP, e.g Thailand-Philippines, Malaysia-Philippines case, Malaysia-Thailand equity, Korea regression, stock index, Contagion, Asian Crises, Financial Markets, interest rate correlation, Thai baht, Malaysia's spread, correlations counterpart, market mayhem, Stock markets, Currency markets, Exchange rates, Currencies, Stocks, Asia and Pacific, East Asia

JEL Classification: F30, F40, G15, G10, F31, E42, G23