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Financial Spillovers to Emerging Markets during the Global Financial Crisis

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Abstract

Using data from the recent crisis, the authors analyze financial linkages between market liquidity and bank solvency measures in advanced economies and emerging market bond and stock markets. A multivariate generalized autoregressive conditional heteroskedasticity model is estimated to gauge the extent of co-movements of these financial variables across markets. The findings indicate that the notion of possible decoupling of financial markets had been misplaced. In fact, interlinkages between funding stress and equity markets in advanced economies and emerging market financial indicators were highly correlated, and have seen sharp increases during specific crisis moments.

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Bibliographic Info

Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 59 (2009)
Issue (Month): 6 (December)
Pages: 507-521

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Handle: RePEc:fau:fauart:v:59:y:2009:i:6:p:507-521

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Keywords: emerging markets; subprime crisis; liquidity; solvency; GARCHemerging markets; subprime crisis; liquidity; solvency; GARCH;

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  1. Graciela L. Kaminsky & Carmen Reinhart, 2003. "The Center and the Periphery: The Globalization of Financial Turmoil," NBER Working Papers 9479, National Bureau of Economic Research, Inc.
  2. Dell’Ariccia, G. & Igan, D. & Laeven, L., 2009. "Credit Booms and Lending Standards: Evidence from the Subprime Mortgage Market," Discussion Paper 2009-46 S, Tilburg University, Center for Economic Research.
  3. Marcello Pericoli & Massimo Sbracia, 2001. "A Primer on Financial Contagion," Temi di discussione (Economic working papers) 407, Bank of Italy, Economic Research and International Relations Area.
  4. Mervyn A. King & Sushil Wadhwani, 1989. "Transmission of Volatility Between Stock Markets," NBER Working Papers 2910, National Bureau of Economic Research, Inc.
  5. Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-50, July.
  6. John Beirne & Guglielmo Maria Caporale & Marianne Schulze-Ghattas & Nicola Spagnolo, 2009. "Volatility Spillovers and Contagion from Mature to Emerging Stock Markets," CESifo Working Paper Series 2545, CESifo Group Munich.
  7. Coudert, Virginie & Gex, Mathieu, 2008. "Does risk aversion drive financial crises? Testing the predictive power of empirical indicators," Journal of Empirical Finance, Elsevier, vol. 15(2), pages 167-184, March.
  8. Geert Bekaert & Campbell R. Harvey, 2003. "Market Integration and Contagion," NBER Working Papers 9510, National Bureau of Economic Research, Inc.
  9. Dungey, Mardi & Fry, Renee & Gonzalez-Hermosillo, Brenda & Martin, Vance, 2006. "Contagion in international bond markets during the Russian and the LTCM crises," Journal of Financial Stability, Elsevier, vol. 2(1), pages 1-27, April.
  10. Lorenzo Cappiello & Robert F. Engle & Kevin Sheppard, 2006. "Asymmetric Dynamics in the Correlations of Global Equity and Bond Returns," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 4(4), pages 537-572.
  11. Mervyn King & Enrique Sentana & Sushil Wadhwani, 1990. "Volatiltiy and Links Between National Stock Markets," NBER Working Papers 3357, National Bureau of Economic Research, Inc.
  12. Laura E. Kodres & Matthew Pritsker, 2002. "A Rational Expectations Model of Financial Contagion," Journal of Finance, American Finance Association, vol. 57(2), pages 769-799, 04.
  13. Heiko Hesse & Nathaniel Frank & Brenda González-Hermosillo, 2008. "Transmission of Liquidity Shocks: Evidence from the 2007 Subprime Crisis," IMF Working Papers 08/200, International Monetary Fund.
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