Crisis, Contagion, and Country Funds: Effects on East Asia and Latin America

Pacific Basin Working Paper Series, Working Paper No. PB96-04

35 Pages Posted: 13 Feb 1997

See all articles by Jeffrey A. Frankel

Jeffrey A. Frankel

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Sergio L. Schmukler

World Bank - Development Research Group (DECRG)

Date Written: September 1996

Abstract

Spillover effects, from one country or region to the other countries and regions, have attracted renewed attention in the aftermath of the Mexican crisis of December 1994. This paper uses data on closed-end country funds to study how a negative shock in Mexican equities is transmitted to Asia and Latin America, and to particular countries within each region. Country funds allow us to study the transmission to other fund net asset values (NAVs) and prices, which are traded in local stock markets and in New York, respectively. The evidence indicates that shocks such as the Mexican crisis produce spillover effects which are less strong in Asia than in Latin America. The shocks seem to affect Latin American NAVs directly, while the transmission to Asian NAVs appears to "pass through" the New York investor fund community, rather than directly from equity prices in Latin America to equity prices in Asia. Even though the data show that co-movements are stronger within each regional market =96 East Asia, Latin America, New York =96 than between them, investors do treat different countries differently. Shocks such as the Mexican 1994 crisis seem to have a stronger impact in countries with weak fundamentals. A high debt/export ratio makes the Philippines vulnerable, for example, despite its location in East Asia, while a low debt/export ratio makes Chile relative less vulnerable, despite its location in South America.

JEL Classification: F30, F34, G15

Suggested Citation

Frankel, Jeffrey A. and Schmukler, Sergio, Crisis, Contagion, and Country Funds: Effects on East Asia and Latin America (September 1996). Pacific Basin Working Paper Series, Working Paper No. PB96-04. Available at SSRN: https://ssrn.com/abstract=9516 or http://dx.doi.org/10.2139/ssrn.9516

Jeffrey A. Frankel

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Mailbox 22
Cambridge, MA 02138
United States
617-496-3834 (Phone)
617-496-5747 (Fax)

HOME PAGE: http://www.ksg.harvard.edu/fs/jfrankel

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Sergio Schmukler (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN MC 3-301
Washington, DC 20433
United States
202-458-4167 (Phone)
202-522-3518 (Fax)

HOME PAGE: http://www.worldbank.org/en/about/people/s/sergio-schmukler

Register to save articles to
your library

Register

Paper statistics

Downloads
591
Abstract Views
2,734
rank
44,191
PlumX Metrics