A New Approach to Measuring Financial Contagion / Kee-Hong Bae, G. Andrew Karolyi, Rene M. Stulz.

Format:

Book

Author/Creator:

Bae, Kee-Hong.

Contributor:

National Bureau of Economic Research.

Karolyi, G. Andrew.

Stulz, Rene M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w7913.

NBER working paper series no. w7913

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2000.

Summary:

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.

Notes:

Print version record

September 2000.