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Contagion in the stock markets: The Asian financial crisis revisited

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  • Khan, Saleheen
  • Park, Kwang Woo (Ken)
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    Abstract

    This paper presents empirical evidence of herding contagion in the stock markets during the 1997 Asian financial crisis, above and beyond macroeconomic fundamental driven co-movements. We analyze the cross-country time-varying correlation coefficients among the stock prices for the countries of Thailand, Malaysia, Indonesia, Korea, and the Philippines, between crisis and tranquil periods. Macromodels are constructed and implemented to capture the pure contagion effects on the markets. After controlling for the economic fundamentals for the five countries, the paper finds strong evidence of herding contagion.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Asian Economics.

    Volume (Year): 20 (2009)
    Issue (Month): 5 (September)
    Pages: 561-569

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    Handle: RePEc:eee:asieco:v:20:y:2009:i:5:p:561-569

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    Web page: http://www.elsevier.com/locate/asieco

    Related research

    Keywords: Financial markets Currency crisis Herd behavior Contagion Kalman filter;

    References

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    1. Hamao, Yasushi & Masulis, Ronald W & Ng, Victor, 1990. "Correlations in Price Changes and Volatility across International Stock Markets," Review of Financial Studies, Society for Financial Studies, vol. 3(2), pages 281-307.
    2. Bertero, Elisabetta & Mayer, Colin, 1989. "Structure and Performance: Global Interdependence of Stock Markets Around the Crash of October 1987," CEPR Discussion Papers 307, C.E.P.R. Discussion Papers.
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    4. Bencivenga, V.R. & Smith, B.D., 1990. "Deficits, Inflation, And The Banking System In Developing Countries: The Optimal Degree Of Financial Repression," RCER Working Papers 214, University of Rochester - Center for Economic Research (RCER).
    5. Carmen M. Reinhart & Sara Calvo, 1996. "Capital Flows to Latin America: Is There Evidence of Contagion Effects?," Peterson Institute Press: Chapters, in: Guillermo A. Calvo & Morris Goldstein & Eduard Hochreiter (ed.), Private Capital Flows to Emerging Markets After the Mexican Crisis, pages 151-171 Peterson Institute for International Economics.
    6. Steven Radelet & Jeffrey Sachs, 1998. "The Onset of the East Asian Financial Crisis," NBER Working Papers 6680, National Bureau of Economic Research, Inc.
    7. Ilan Goldfajn & Taimur Baig, 1999. "Financial market contagion in the Asian crisis," Textos para discussão 400, Department of Economics PUC-Rio (Brazil).
    8. Corsetti, Giancarlo & Pericoli, Marcello & Sbracia, Massimo, 2005. "'Some contagion, some interdependence': More pitfalls in tests of financial contagion," Journal of International Money and Finance, Elsevier, vol. 24(8), pages 1177-1199, December.
    9. Bartram, Sohnke M. & Wang, Yaw-Huei, 2005. "Another look at the relationship between cross-market correlation and volatility," Finance Research Letters, Elsevier, vol. 2(2), pages 75-88, June.
    10. Boyd, John H. & Levine, Ross & Smith, Bruce D., 2001. "The impact of inflation on financial sector performance," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 221-248, April.
    11. Baur, Dirk, 2003. "Testing for contagion--mean and volatility contagion," Journal of Multinational Financial Management, Elsevier, vol. 13(4-5), pages 405-422, December.
    12. Dornbusch, Rudiger & Park, Yung Chul & Claessens, Stijn, 2000. "Contagion: Understanding How It Spreads," World Bank Research Observer, World Bank Group, vol. 15(2), pages 177-97, August.
    13. Khalid, Ahmed M. & Kawai, Masahiro, 2003. "Was financial market contagion the source of economic crisis in Asia?: Evidence using a multivariate VAR model," Journal of Asian Economics, Elsevier, vol. 14(1), pages 131-156, February.
    14. Chuhan, Punam & Claessens, Stijn & Mamingi, Nlandu, 1998. "Equity and bond flows to Latin America and Asia: the role of global and country factors," Journal of Development Economics, Elsevier, vol. 55(2), pages 439-463, April.
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    Cited by:
    1. Fischer, Justina AV, 2012. "Globalization and political trust," MPRA Paper 37763, University Library of Munich, Germany.
    2. Marcel Aloy & Gilles de Truchis & Gilles Dufrénot & Benjamin Keddad, 2014. "Shift-Volatility Transmission in East Asian Equity Markets," AMSE Working Papers 1402, Aix-Marseille School of Economics, Marseille, France, revised Mar 2014.
    3. Fischer, Justina A.V., 2012. "The choice of domestic policies in a globalized economy," MPRA Paper 36990, University Library of Munich, Germany.
    4. Zouheir Mighri & Faysal Mansouri, 2013. "Dynamic Conditional Correlation Analysis of Stock Market Contagion: Evidence from the 2007-2010 Financial Crises," International Journal of Economics and Financial Issues, Econjournals, vol. 3(3), pages 637-661.
    5. Hsien-Yi LEE, 2011. "Contagion in International Stock Markets During the sub Prime Mortgage Crisis," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 8, pages 141-158, December.
    6. Baek, In-Mee & Jun, Jongbyung, 2011. "Testing contagion of the 1997-98 crisis in Asian stock markets with structural breaks and incubation periods," Journal of Asian Economics, Elsevier, vol. 22(5), pages 356-368, October.
    7. Celık, Sibel, 2012. "The more contagion effect on emerging markets: The evidence of DCC-GARCH model," Economic Modelling, Elsevier, vol. 29(5), pages 1946-1959.
    8. Hsien-Yi Lee, 2012. "Contagion in International Stock Markets during the Sub Prime Mortgage Crisis," International Journal of Economics and Financial Issues, Econjournals, vol. 2(1), pages 41-53.
    9. Fischer, Justina A.V., 2012. "The choice of domestic policies in a globalized economy: Extended Version," MPRA Paper 37816, University Library of Munich, Germany.
    10. Chia-Hsun Hsieh & Shian-Chang Huang, 2012. "Time-Varying Dependency and Structural Changes in Currency Markets," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 48(2), pages 94-127, March.
    11. Ilyes Abid & Khaled Guesmi & Olfa Kaabia & Duc Khuong Nguyen, 2014. "Financial Crises and Contagion Effects between the US and OECD Equity Markets," Working Papers 2014-451, Department of Research, Ipag Business School.

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