Who are the vectors of contagion? Evidence from emerging markets

Diego A. Agudelo and Daimer J. Múnera

International Review of Financial Analysis, 2023, vol. 87, issue C

Abstract: We test whether foreign investors are the vectors of contagion to emerging markets, as various theoretical models imply. We also explore the role of local institutions and individuals during and after contagion days. To do this, we propose a novel measure of contagion and estimate its dynamic relationship with the net purchases of each of the three groups of investors, from 2007 to 2016, in seven emerging markets. We find that foreign investors bring contagion by actively selling and impacting local prices on days of large declines in the US stock market and the days following. Local institutions are also net sellers on the day of contagion, while individuals act as the main liquidity providers, but institutions become net buyers soon after.

Keywords: Contagion; Emerging markets; Foreign flows; Individual investors; Institutional investors (search for similar items in EconPapers)
JEL-codes: D82 G14 G15 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:87:y:2023:i:c:s1057521923001151

DOI: 10.1016/j.irfa.2023.102599

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