Mardi Dungey (Cambridge Endowment for Research in Finance Judge Business School University of Cambridge Trumpington Street Cambridge, UK CB2 1AG and Centre for Applied Macroeconomic Analysis Australian National University) Renée Fry (Centre for Applied Macroeconomic Analysis Australian National University Canberra, ACT, Australia 0200 and Cambridge Endowment for Research in Finance University of Cambridge) Vance L. Martin (Department of Economics University of Melbourne Parkville, VIC, Australia 3010)
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This paper examines the empirical literature on financial market contagion in Asia during the 1997-98 financial crises with respect to existing tests of contagion. Empirical evidence shows that contagion affects both developed and emerging markets and does not seem to vary with the relative fundamental economic health or trade and financial linkages of the Asian economies. Contagion occurs across both asset types and geographical borders and tends to have larger effects in equity markets than in currency and bond markets. There is evidence to support the hypothesis that contagion is regional and transmitted through developed markets. A discussion of the behavior of correlation coefficients in the presence of contagion and financial crises suggests that they are not a reliable metric for detecting contagion. (c) 2006 The Earth Institute at Columbia University and the Massachusetts Institute of Technology.
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