Contagion: an empirical test

Jon Wongswan

No 775, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Using the conditional Capital Asset Pricing Model (CAPM), this paper tests for the existence and pattern of contagion and capital market integration in global equity markets. Contagion is defined as significant excess conditional correlation among different countries' asset returns above what could be explained by economic fundamentals (systematic risks). Capital market integration is defined as the situation in which only systematic risks are priced. The paper uses a panel of sixteen countries, divided into three blocs: Asia, Latin America, and Germany-U.K.-U.S., for the period from 1990 through 1999. The results show evidence of contagion and capital market integration. In addition, contagion is found to be a regional phenomenon.

Keywords: Capital market; Banks and banking, International (search for similar items in EconPapers)
Date: 2003
New Economics Papers: this item is included in nep-rmg
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Citations: View citations in EconPapers (4)

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