Global Crises and Equity Market Contagion

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in WO R K I N G PA PE R S E R I E S N O 1381 / S E P T E M B E R Macroprudential Research NetworkThis paper presents research conducted within the Macroprudential Research Network (MaRs). The network is composed of economists from the European System of Central Banks (ESCB), i.e. the 27 national central banks of the European Union (EU) and the European Central Bank. The objective of MaRs is to develop core conceptual frameworks, models and/or tools supporting macro-prudential supervision in the EU.The research is carried out in three work streams: 1. Macro-fi nancial models linking fi nancial stability and the performance of the economy; 2. Early warning systems and systemic risk indicators; 3. Assessing contagion risks.MaRs is chaired by Philipp Hartmann (ECB). Paolo Angelini (Banca d'Italia), Laurent Clerc (Banque de France), Carsten Detken (ECB) and Katerina Šmídková (Czech National Bank) are workstream coordinators. Xavier Freixas (Universitat Pompeu Fabra) acts as external consultant and Angela Maddaloni (ECB) as Secretary.The refereeing process of this paper has been coordinated by a team composed of Cornelia Holthausen, Kalin Nikolov and Bernd Schwaab (all ECB).The paper is released in order to make the research of MaRs generally available, in preliminary form, to encourage comments and suggestions prior to fi nal publication. The views expressed in the paper are the ones of the author(s) and do not necessarily refl ect those of the ECB or of the ESCB. ECB Working Paper Series No 1381September 2011 Abstract 4 Non-technical summary 5

Equity market contagion during the global financial crisis: Evidence from the world's eight largest economies

“…The results for the financial sector cast doubt on the financial globalization hypothesis -that is, whether contagion during the crisis has a greater effect on those markets that are highly 2 integrated. Overall, our results are consistent with previous studies on equity market contagion during the GFC (Bekaert et al, 2011;Baur, 2012). However, unlike Bekaert et al (2011), we find large contagion effects in equity markets.…”

“…Overall, our results are consistent with previous studies on equity market contagion during the GFC (Bekaert et al, 2011;Baur, 2012). However, unlike Bekaert et al (2011), we find large contagion effects in equity markets.…”

“…The initial empirical literature on financial crisis and contagion focused on fundamentals-based mechanisms and directed towards developing an early warning system (Eichengreen et al, 1996;Rijckeghem and Weder, 2001) while later empirical works are focused on investor behavior based mechanisms Dungey et al (2005); Bekaert et al (2011).…”

“…Using a broad set of data from 55 advanced and emerging countries, Bekaert et al (2011) examine the transmission of crises to country-industry equity portfolios in 55 countries during the global financial crisis. Using a CAPM based approach, they find systematic and substantial contagion from domestic equity markets to individual domestic equity portfolios, with its severity inversely related to the quality of countries' economic fundamentals.…”

Media sentiment and CDS spread spillovers: Evidence from the GIIPS countries

“…The empirical results show that Ireland, Italy and Spain appear to be most contagious for BRIICKS markets compared to Greece. Bekaert et al (2011) argue that co-movements may be caused by interdependence as a result of fundamental and financial cross-country linkages. However, in this paper we go beyond estimation of the dynamics and intensity of information transmission across markets during the crisis episodes (e.g., Yarovaya et al, 2016a).…”