Global crises and equity market contagion

Geert Bekaert, Michael Ehrmann, Marcel Fratzscher and Arnaud Mehl

No 8438, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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.

Keywords: Financial policies; Contagion; Country risk; Current account; Equity markets; Factor model; Financial crisis; Fx reserves; Global transmission; market integration (search for similar items in EconPapers)
JEL-codes: F3 G14 G15 (search for similar items in EconPapers)
Date: 2011-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (128)

Downloads: (external link)
https://cepr.org/publications/DP8438 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: The Global Crisis and Equity Market Contagion (2014)
Working Paper: The Global Crisis and Equity Market Contagion (2014)
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) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:8438

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP8438

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().