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Bad bad contagion

Juan M. Londono ()

Journal of Banking & Finance, 2019, vol. 108, issue C

Abstract: This paper proposes a new measure of contagion as the coincidence of large left-tail events in the idiosyncratic disturbances of international stock returns after controlling for their exposure to a global factor. Episodes of bad contagion, especially those involving a large number of countries, are followed by a significant drop in international stock returns. This predictability pattern can be understood as an international transmission effect, as bad contagion only affects countries that did not experience tail events. In addition, the negative effect of bad contagion spills over to real growth, sovereign default risk, and financial stability indicators.

Keywords: International stock markets; Interconnectedness; Integration; Transmission; Spillovers (search for similar items in EconPapers)
JEL-codes: F36 F65 G15 (search for similar items in EconPapers)
Date: 2019
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Working Paper: Bad Bad Contagion (2016) Downloads
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DOI: 10.1016/j.jbankfin.2019.105652

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