Global Crises and Equity Market Contagion / Geert Bekaert, Michael Ehrmann, Marcel Fratzscher, Arnaud J. Mehl.

Format:

Book

Author/Creator:

Bekaert, Geert.

Contributor:

National Bureau of Economic Research.

Ehrmann, Michael.

Fratzscher, Marcel.

Mehl, Arnaud J.

Series:

Working Paper Series (National Bureau of Economic Research) no. w17121.

NBER working paper series no. w17121

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2011.

Summary:

Using the 2007-09 financial crisis as a laboratory, we analyze the transmission of crises to country-industry equity portfolios in 55 countries. We use a factor model to predict crisis returns, defining unexplained increases in factor loadings and residual correlations as indicative of contagion. We find statistically significant evidence of contagion from US markets and from the global financial sector, but the effects are economically small. By contrast, there has been 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. This confirms the old "wake-up call" hypothesis, with markets and investors focusing substantially more on country-specific characteristics during the crisis.

Notes:

Print version record

June 2011.