×

Contagion and global financial crises: lessons from nine crisis episodes. (English) Zbl 1412.91246

Summary: Episodes of extraordinary turbulence in global financial markets are examined during nine crises ranging from the Asian crisis in 1997–98 to the recent European debt crisis of 2010–13. After dating each crisis using a regime switching model, the analysis focuses on changes in the dependence structures of equity markets through correlation, coskewness and covolatility to address a range of hypotheses regarding contagion transmission. The results show that the great recession is a true global financial crisis. Finance linkages are more likely to result in crisis transmission than trade and emerging market crises transmit unexpectedly, particularly to developed markets.

MSC:

91G99 Actuarial science and mathematical finance
62P05 Applications of statistics to actuarial sciences and financial mathematics
PDFBibTeX XMLCite
Full Text: DOI

References:

[1] Ang A, Bekaert G (2002) International asset allocation with regime shifts. Rev Financ Stud 15(4):1137-1187 · doi:10.1093/rfs/15.4.1137
[2] Arghyrou M, Kontonikas A (2012) The EMU Sovereign-debt crisis: fundamentals, expectations and contagion. J Int Financ Mark Inst Money 22:658-677 · doi:10.1016/j.intfin.2012.03.003
[3] AuYong HH, Gan C, Treepongkaruna S (2004) Cointegration and causality in the asian and emerging foreign exchange markets: evidence from the 1990s financial crises. Int Rev Financ Anal 13:479-515 · doi:10.1016/j.irfa.2004.02.024
[4] Baig T, Goldfajn I (2000) The Russian default and the contagion to Brazil. NBER working paper no 160
[5] Baur D (2003) Testing for contagion- mean and volatility contagion. J Multinatl Financ Manag 13:405-422 · doi:10.1016/S1042-444X(03)00018-5
[6] Baur D (2012) Financial contagion and the real economy. J Bank Financ 36(10):2680-2692 · doi:10.1016/j.jbankfin.2011.05.019
[7] Baur DG, Fry RA (2009) Multivariate contagion and interdependence. J Asian Econ 20:353-366 · doi:10.1016/j.asieco.2009.04.008
[8] Bekaert G, Ehrmann M, Fratzscher M, Mehl A (2011) Global crises and equity market contagion. NBER working paper w17121
[9] Beirne J, Caporale GM, Schulze-Ghattas M, Spagnolo N (2009) Volatility spillovers and contagion from mature to emerging stock markets. European central bank working paper no 113
[10] Billio M, Caporin M (2005) Multivariate Markov switching dynamic conditional correlation GARCH representations for contagion analysis. JISS 14(2):145-161 · Zbl 1088.62123 · doi:10.1007/s10260-005-0108-8
[11] Billio M, Pelizzon L (2003) Contagion and interdependence in stock markets: have they been misdiagnosed? J Econ Bus 55:405-426 · doi:10.1016/S0148-6195(03)00048-1
[12] Blanchard O (2008) Transcript of a press conference on the world economic outlook. Washington, DC 8 Oct 2008
[13] Briere M, Chapelle A, Szafarz A (2012) No contagion, only globalization and flight to quality. J Int Money Financ 31:1729-1744 · doi:10.1016/j.jimonfin.2012.03.010
[14] Boschi M (2005) International financial contagion: evidence from the Argentine crisis of 2001-2002. Appl Financ Econ 15:153-163 · doi:10.1080/0960310042000306943
[15] Calvo GA, Mendoza EG (2000) Rational contagion and the globalization of securities markets. J Int Econ 51:79-113 · doi:10.1016/S0022-1996(99)00038-0
[16] Caporale GM, Cipollini A, Spagnolo N (2005) Testing for contagion: a conditional correlation analysis. J Empir Finan 12:476-489 · doi:10.1016/j.jempfin.2004.02.005
[17] Caprio, G.; Klingebiel, D.; Laeven, L.; Noguera, G.; Honohan, P. (ed.); Laeven, L. (ed.), Appendix: banking crisis database (2005), UK
[18] Caramazza F, Ricci L (2003) International financial contagion in currency crises. J Int Money Financ 23:51-70 · doi:10.1016/j.jimonfin.2003.10.001
[19] Celik S (2012) The more contagion effect on emerging markets: the evidence of DCC-GARCH model. Econ Model 29:1946-1959 · doi:10.1016/j.econmod.2012.06.011
[20] Chan JCC, Fry-McKibbin RA, Hsiao CY (2013) A regime switching skew-normal model for financial market crises and contagion. CAMA working paper no 15
[21] Chiang TC, Jeon BN, Li H (2007) Dynamic correlation analysis of financial contagion: evidence from asian markets. J Int Money Financ 26:1206-1228 · doi:10.1016/j.jimonfin.2007.06.005
[22] Choe K, Choi P, Nam K, Vahid F (2012) Testing financial contagion on Heteroskedastic asset returns in time-varying conditional correlation. Pac Basin Financ J 20:271-291 · doi:10.1016/j.pacfin.2011.09.003
[23] Chudik A, Fratzscher M (2011) Identifying the global transmission of the 2007-09 financial crisis in a GVAR model. European central bank working paper no 1285/January
[24] Cifarelli G, Paladino G (2004) The impact of the Argentine default on volatility co-movements in emerging bond markets. Emerg Mark Rev 5:427-446 · doi:10.1016/j.ememar.2004.08.001
[25] Cocozza E, Piselli P (2011) Testing for east-west contagion in the European banking sector during the financial crisis. Temi di discussione working paper no 790
[26] Collins D, Gavron S (2005) Measuring equity market contagion in multiple financial events. Appl Financ Econ 15:531-538 · doi:10.1080/09603100500056759
[27] Committee on the Global Financial System (1999) A review of financial market events in autumn 1998. Bank for international settlements. Basel, Switzerland
[28] Corsetti G, Pesenti P (2005) The simple geometry of transmission and stabilization in closed and open economies. NBER working paper no 11341
[29] de Haas R, van Horen N (2013) Running for the exit? international bank lending during a financial crisis. Rev Financ Stud 26:244-285 · doi:10.1093/rfs/hhs113
[30] Diebold FX, Yilmaz K (2009) Measuring financial asset return and volatility spillovers, with application to global equity markets. Econ J 119:158-171 · doi:10.1111/j.1468-0297.2008.02208.x
[31] Dungey M, Fry RA, Martin VL (2002) Equity transmission mechanisms from Asia to Australia: interdependence or contagion? Aust J Manag 28(2):157-182 · doi:10.1177/031289620302800203
[32] Dungey M, Fry RA, Martin VL (2006) Correlation, contagion and Asian evidence. Asian Econ Pap 5:32-72 · doi:10.1162/asep.2006.5.2.32
[33] Dungey M, Fry RA, González-Hermosillo B, Martin VL (2007) Contagion in global equity markets in 1998: the effects of the russian and LTCM crises. N Am J Econ Financ 18:155-174 · doi:10.1016/j.najef.2007.05.003
[34] Dungey M, Fry RA, González-Hermosillo B, Martin VL, Tang C (2009) Are financial crises alike? IMF working paper no WP/10/14
[35] Dungey M, Fry-McKibbin RA, Martin VL, Xiaokang W (2013) Finite sample properties of contagion tests, manuscript. ANU, Canberra, Australia
[36] Essaadi E, Jouini J, Khallouli W (2009) The Asian crisis contagion: a dynamic correlation approach analysis. Panoeconomicus 56:241-260 · doi:10.2298/PAN0902241E
[37] Fong TPW, Wong AY (2012) Gauging potential sovereign risk contagion in Europe. Econ Lett 115:496-499 · doi:10.1016/j.econlet.2011.12.112
[38] Forbes KJ (2001) Are trade linkages important determinants of country vulnerability to crises? NBER working paper no 8194
[39] Forbes KJ (2012) The Big C: identifying contagion. NBER Working Paper No 18465
[40] Forbes KJ, Rigobon R (2002) No contagion, only interdependence: measuring stock market co-movements. J Financ 57:2223-2261 · doi:10.1111/0022-1082.00494
[41] Fry RA, Martin VL, Tang C (2010) A new class of tests of contagion with applications. J Bus Econ Stat 28:423-437 · Zbl 1214.62106 · doi:10.1198/jbes.2010.06060
[42] Fry R, Hsiao CY, Tang C (2011) Actually this time is different. CAMA Working Paper 2011(12)
[43] Galbraith JK (1998) Bracing for the Asian shock wave. The New York times, New York, US. 2 February 1998
[44] Gallegati (2012) A wavelet-based approach to test for financial market contagion. Comput Stat Data Anal 56:3491-3497 · Zbl 1254.91657 · doi:10.1016/j.csda.2010.11.003
[45] Gelos RG, Sahay R (2001) Financial market spillovers in transition economies. Econ Transit 9:53-86 · doi:10.1111/1468-0351.00067
[46] Glick R, Rose A (1999) Contagion and trade: why are currency crises regional? J Int Money Financ 18:1-38 · doi:10.1016/S0261-5606(99)00023-6
[47] Goldstein M (1998) The Asian financial crisis: causes, cures and systemic implications, policy analysis in international economics. Institute for International Economics, Washington DC
[48] Goldstein I, Razin A (2013) Review of theories of financial crises. NBER working paper no 18670
[49] Goldstein M, Kaminsky GL, Reinhart CM (2000) Assessing financial vulnerability: an early warning system for emerging markets. Institute for international economics, Washington DC
[50] Gravelle T, Kichian M, Morley J (2006) Detecting shift-contagion in currency and bond markets. J Int Econ 68:409-423 · doi:10.1016/j.jinteco.2005.07.005
[51] Guidolin M, Timmerman A (2009) International asset allocation under regime switching, skew and kurtosis preferences. Rev Financ Stud 21:889-935 · doi:10.1093/rfs/hhn006
[52] Hamilton JD (1989) A new approach to the economic analysis of nonstationary time series and the business cycle. Econometrica 57(2):357-384 · Zbl 0685.62092 · doi:10.2307/1912559
[53] Harvey CR, Siddique A (2000) Conditional skewness in asset pricing tests. J Financ 55:1263-1295 · doi:10.1111/0022-1082.00247
[54] Hatemi-J A, Roca E (2011) How globally contagious was the recent us real estate market crisis? Evidence based on a new contagion test. Econ Model 28:2560-2565 · doi:10.1016/j.econmod.2011.07.017
[55] Hon MT, Strauss JK, Yong SK (2007) Deconstructing the Nasdaq bubble: a look at contagion across international stock markets. J Int Financ Mark Inst Money 17:213-230 · doi:10.1016/j.intfin.2005.08.005
[56] Horta P, Mendes C, Vieira I (2010) Contagion effects of the subprime crisis in the European NYSE Euronext markets. Port Econ J 9:115-140 · doi:10.1007/s10258-010-0056-6
[57] Hsiao CY (2012) A new test of financial contagion with application to the US banking sector, manuscript, CAMA. The Australian National University, Canberra, Australia
[58] Hui C, Chung T (2011) Crash risk of the Euro in the sovereign debt crisis of 2009-10. J Bank Financ 35:2945-2955 · doi:10.1016/j.jbankfin.2011.03.020
[59] International Monetary Fund (2003) Lessons from the crisis in Argentina, policy development and review department. International Monetary Fund, Washington DC
[60] Jang H, Sul W (2002) The Asian financial crisis and the co-movement of Asian stock markets. J Asian Econ 13:94-104 · doi:10.1016/S1049-0078(01)00115-4
[61] Kabir MH, Hassan MK (2005) The near-collapse of LTCM, US financial stock returns, and the fed. J Bank Financ 29:441-460 · doi:10.1016/j.jbankfin.2004.05.014
[62] Kalbaska A, Gatkowski M (2012) Eurozone sovereign contagion: evidence from the CSD market (20052010). J Econ Behav Organ 2012
[63] Kali R, Reyes J (2010) Financial contagion on the international trade network. Econ Inq 48:1072-1101 · doi:10.1111/j.1465-7295.2009.00249.x
[64] Kaminsky GL, Reinhart CM (2003) The center and the periphery: the globalization of financial turmoil. NBER working paper no 9479
[65] Kaminsky GL, Schmukler SL (1999) What triggers market jitters? A chronicle of the asian crisis. J Int Money Financ 18:537-560 · doi:10.1016/S0261-5606(99)00015-7
[66] Kaminsky GL, Reinhart CM, Vegh CA (2003) The unholy trinity of financial contagion. NBER working paper no 10061
[67] Kasch M, Caporin M (2013) Volatility threshold dynamic conditional correlations: an international analysis. J Financ Econ 0(0):1-37
[68] Kenourgios D, Padhi P (2012) Emerging markets and financial crises: regional, global or isolated shocks? J Multinatl Financ Manag 22:24-38 · doi:10.1016/j.mulfin.2012.01.002
[69] Kim DH, Loretan M, Remolona EM (2010) Contagion and risk premia in the amplification of crisis: evidence from Asian names in the global CDS market. J Asian Econ 21:314-326 · doi:10.1016/j.asieco.2009.07.010
[70] King M, Wadhwani S (1990) Transmission of volatility between stock market. Rev Financ Stud 3:5-33 · doi:10.1093/rfs/3.1.5
[71] Kose MA (2011) Review of this time is different: eight centuries of financial folly by Carmen M. Reinhart and Kenneth S. Rogoff. J Int Econ 84:132-134 · doi:10.1016/j.jinteco.2011.03.001
[72] Krugman P (1998) What happened to Asia? Mimeo. Massachusetts Institute of Technology, Cambridge
[73] Kyle A, Xiong W (2001) Contagion as a wealth effect. J Financ 56:1401-1440 · doi:10.1111/0022-1082.00373
[74] Laeven L, Valencia F (2008) Systemic banking crises: a new database. IMF working paper no WP/08/224
[75] Lane PR (2013) Financial globalization and the crisis. Open Econ Rev 24:555-580 · doi:10.1007/s11079-012-9266-0
[76] Loisel O, Martin P (2001) Coordination, cooperation, contagion and currency crises. J Int Econ 53:399-419 · doi:10.1016/S0022-1996(00)00055-6
[77] Longstaff FA (2010) The subprime credit crisis and contagion in financial markets. J Financ Econ 97:436-450 · doi:10.1016/j.jfineco.2010.01.002
[78] Lucas A, Schwaab B, Zhang X (2011) Conditional probabilities for euro area sovereign default risk, manuscript. Tinbergen Institute Discussion Paper no TI 11-176/2/DSF29
[79] Masson, P.; Agenor, PR (ed.); Miller, M. (ed.); Vines, D. (ed.); Weber, A. (ed.), Contagion: monsoonal effects, spillovers, and jumps between multiple equilibria, 265-283 (1999), Cambridge · doi:10.1017/CBO9780511559587.017
[80] Matsuyama K (2007) Credit traps and credit cycles. Am Econ Rev 97:503-516 · doi:10.1257/aer.97.1.503
[81] Metiu N (2012) Sovereign risk contagion in the Eurozone. Econ Lett 117:35-38 · Zbl 1254.91606 · doi:10.1016/j.econlet.2012.04.074
[82] Miller V, Vallée L (2011) Central bank balance sheets and the transmission of financial crises. Open Econ Rev 22:355-363 · doi:10.1007/s11079-009-9139-3
[83] Mink M, Haan JD (2013) Contagion during the Greek sovereign debt crisis. J Int Money Financ 34:102-113 · doi:10.1016/j.jimonfin.2012.11.006
[84] Missio S, Watzka S (2011) Financial contagion and the European debt crisis. CESifo working paper no 3554
[85] Munoz MP, Marquez MD, Chulia H (2010) Contagion between markets during financial crises, manuscript. University of Barcelona, Barcelona, Spain
[86] Naoui K, Liouane N, Brahim S (2010) A dynamic conditional correlation analysis of financial contagion: the case of the subprime credit crisis. Int J Econ Financ 2:85-96 · doi:10.5539/ijef.v2n3p85
[87] Pais A, Stork P (2011) Contagion risk in the Australian banking and property sectors. J Bank Financ 35:681-697 · doi:10.1016/j.jbankfin.2010.05.012
[88] Pappas V, Ingham H, Izzeldin M (2013) Financial market synchronization and contagion. Evidence from CCE and Eurozone, paper presented at INFINITI 2013
[89] Pelletier D (2006) Regime switching for dynamic correlations. J Econ 131(1-2):445-473 · Zbl 1337.62277 · doi:10.1016/j.jeconom.2005.01.013
[90] Reinhart C (2010) This time is different chartbook: country histories on debt, default, and financial crises. NBER working paper no 15815
[91] Reinhart C, Rogoff KS (2008a) Is the 2007 US sub-prime financial crisis so different? An international historical comparison. Am Econ Rev 98:339-333 · doi:10.1257/aer.98.2.339
[92] Reinhart C, Rogoff KS (2008b) This time is different: eight centuries of financial folly. Princeton University Press, Princeton and Oxford
[93] Rigobon R (2003) On the measurement of the international propagation of shocks: is the transmission stable? J Int Econ 61:261-283 · doi:10.1016/S0022-1996(03)00007-2
[94] Saleem K (2009) International linkage of the russian market and the Russian financial crisis: a multivariate GARCH analysis. Res Int Bus Financ 23:243-256 · doi:10.1016/j.ribaf.2008.09.003
[95] Samitas A, Tsakalos I (2013) How can a small country affect the European economy? The Greek contagion phenomenon. J Int Financ Mark Inst Money 25:18-32 · doi:10.1016/j.intfin.2013.01.005
[96] Serwa D, Bohl MT (2005) Financial contagion vulnerability and resistance: a comparison of European stock markets. Econ Syst 29:344-362 · doi:10.1016/j.ecosys.2005.05.003
[97] Sojli E (2007) Contagion in emerging markets: the Russian crisis. Appl Financ Econ 17:197- 213 · doi:10.1080/09603100600639876
[98] Susmel R, Engle RF (1994) Hourly volatility spillovers between international equity markets. J Int Money Financ 13:3-25 · doi:10.1016/0261-5606(94)90021-3
[99] Syllignakis MN, Kouretas GP (2011) Dynamic correlation analysis of financial contagion: evidence from the central and eastern european markets. Int Rev Econ Financ 20:717-732 · doi:10.1016/j.iref.2011.01.006
[100] Van Rijckeghem C, Weder B (2001) Sources of contagion: is it finance or trade. J Int Econ 54:293- 308 · doi:10.1016/S0022-1996(00)00095-7
[101] Wälti S, Weder G (2008) Recovering from bond market distress: good luck and good policy. Emerg Mark Rev 10:36-50 · doi:10.1016/j.ememar.2008.11.002
[102] Wen X, Wei Y, Huang D (2012) Measuring contagion between the energy market and stock market during financial crisis: a copula approach. Energy Econ 34:1435-1446 · doi:10.1016/j.eneco.2012.06.021
[103] Yuan K (2005) Asymmetric price movements and borrowing constraints: a rational expectations equilibrium model of crises, contagion and confusion. J Financ 60:379-411 · doi:10.1111/j.1540-6261.2005.00733.x
This reference list is based on information provided by the publisher or from digital mathematics libraries. Its items are heuristically matched to zbMATH identifiers and may contain data conversion errors. In some cases that data have been complemented/enhanced by data from zbMATH Open. This attempts to reflect the references listed in the original paper as accurately as possible without claiming completeness or a perfect matching.