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Financial contagion of the 2008 crisis: is there any evidence of financial contagion from the US to the Baltic states

Andres Kuusk (), Tiiu Paas and Karmen Viikmaa ()
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Andres Kuusk: University of Tartu, Faculty of Economics and Business Administration, Tartu, Estonia
Karmen Viikmaa: University of Tartu, Faculty of Economics and Business Administration, Tartu, Estonia

Eastern Journal of European Studies, 2011, vol. 2(2), 61-76

Abstract: The paper aims to investigate the research question whether the US 2008 crisis spilled over contagiously to the Baltic States as small open economies. In order to examine the evidence of financial contagion as a systematic component of financial risks in the case of the Baltic States, we employ several testing methodologies like correlation coefficients based methods adjusting also with possible heteroskedasticity and ARCH-GARCH framework. The results are somewhat mixed. On the one hand, stock returns’ correlations between US and Baltic States increased during crisis times, confirming the financial contagion hypothesis. On the other hand, volatility has not spilled over from US to Estonia, Latvia and Lithuania, neither have volatility spillovers become stronger after the crisis hit.

Keywords: financial crisis; financial contagion; crisis management; Baltic states (search for similar items in EconPapers)
Date: 2011
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Handle: RePEc:jes:journl:y:2011:v:2:p:61-76