A New Approach to Measuring Financial Contagion

Kee-Hong Bae, G. Karolyi and René Stulz

No 7913, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper proposes a new approach to evaluate contagion in financial markets. Our measure of contagion captures the co-incidence of extreme return shocks across countries within a region and across regions that cannot be explained by linear propagation models of shocks. We characterize the extent of contagion, its economic significance, and its determinants using a multinomial logistic regression model. Applying our approach to daily returns of emerging markets during the 1990s, we find that contagion, when measured by the co-incidence within and across regions of extreme return shocks, is predictable and depends on regional interest rates, exchange rate changes, and conditional stock return volatility. Evidence that contagion is stronger for extreme negative returns than for extreme positive returns is mixed.

JEL-codes: G10 G15 (search for similar items in EconPapers)
Date: 2000-09
Note: AP CF IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (38)

Published as Proceedings, Federal Reserve Bank of Chicago, May 2001 issue, pages 489-529
Published as Review of Financial Studies, Vol. 16, no. 3 (July 2003): 717-763

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Related works:
Journal Article: A New Approach to Measuring Financial Contagion (2003)
Working Paper: A new approach to measuring financial contagion (2001)
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