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The Global Crisis and Equity Market Contagion

Geert Bekaert (), Michael Ehrmann (), Marcel Fratzscher () and Arnaud Mehl ()

No 1352, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: We analyze the transmission of the financial crisis of 2007 to 2009 to 415 country-industry equity portfolios. We use a factor model to predict crisis returns, defining unexplained increases in factor loadings and residual correlations as indicative of contagion. While we find evidence of contagion from the U.S. and the global financial sector, the effects are small. By contrast, there has been substantial contagion from domestic markets to individual domestic portfolios, with its severity inversely related to the quality of countries' economic fundamentals. This confirms the "wake-up call" hypothesis, with markets focusing more on country-specific characteristics during the crisis.

Keywords: keywordscontagion; financial crisis; equity markets; global transmission; market integration; country risk; factor model; financial policies; FX reserves; current account (search for similar items in EconPapers)
JEL-codes: F3 G14 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-ifn
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (105) Track citations by RSS feed

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Related works:
Journal Article: The Global Crisis and Equity Market Contagion (2014) Downloads
Working Paper: Global crises and equity market contagion (2011) Downloads
Working Paper: Global crises and equity market contagion (2011) Downloads
Working Paper: Global Crises and Equity Market Contagion (2011) Downloads
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