Economics at your fingertips  

Investigating liquidity constraints as a channel of contagion: a regime switching approach

Rajan Sruthi () and Santhakumar Shijin ()
Additional contact information
Rajan Sruthi: Pondicherry University
Santhakumar Shijin: Pondicherry University

Financial Innovation, 2020, vol. 6, issue 1, 1-21

Abstract: Abstract The present study investigates the timing and repercussion of the subprime crisis of 2008–09 in a regime-switching model. The interdependence and co-movement of financial markets in different countries has been enhanced due to the globalization of international trade, and investment trends can spread globally as a result of investors owning international portfolios. This study uses a regime-switching model to illustrate the timing of the crisis regime and calm regime for United States (US) stock index returns and the corresponding impact on Indian stock index returns. The Indian stocks investigated are classified into “remote” and “reachable” stocks, and different effects are found for these two types. It is found that shocks originating in the US can be transferred to the Indian reachable market as a result of foreign investors. There is, however, a less persistent impact on remote stocks. Accordingly, the study contributes to the literature on the material impacts of the crisis resulting from liquidity constraints and fear of contagion among investors.

Keywords: Financial crisis; Financial contagion; Co-movement; Emerging market; Regime- switching (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) Abstract (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
http://www.springer. ... nomics/journal/40589

DOI: 10.1186/s40854-020-00185-2

Access Statistics for this article

Financial Innovation is currently edited by J. Leon Zhao and Zongyi

More articles in Financial Innovation from Springer, Southwestern University of Finance and Economics
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

Page updated 2020-12-08
Handle: RePEc:spr:fininn:v:6:y:2020:i:1:d:10.1186_s40854-020-00185-2