Global crises and equity market contagion
Geert Bekaert (),
Michael Ehrmann (),
Marcel Fratzscher () and
Arnaud Mehl ()
No 1381, Working Paper Series from European Central Bank
Using the 2007-2009 financial crisis as a laboratory, we analyze the transmission of crises to country-industry equity portfolios in 55 countries. We use an asset pricing framework with global and local factors to predict crisis returns, defining unexplained increases in factor loadings as indicative of contagion. We find evidence of systematic contagion from US markets and from the global financial sector, but the effects are very small. By contrast, there has been 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 and policies. Consequently, we reject the globalization hypothesis that links the transmission of the crisis to the extent of global exposure. Instead, we confirm the old “wake-up call” hypothesis, with markets and investors focusing substantially more on idiosyncratic, country-specific characteristics during the crisis. JEL Classification: F3, G14, G15
Keywords: Contagion; country risk; current account; equity markets; factor model; financial crisis; financial policies; FX reserves; global transmission; market integration (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-fmk and nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (46) Track citations by RSS feed
Downloads: (external link)
Working Paper: Global crises and equity market contagion (2011)
Working Paper: Global Crises and Equity Market Contagion (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:ecb:ecbwps:20111381
Access Statistics for this paper
More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Series data maintained by Official Publications ().