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Market Integration and Contagion

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  • Geert Bekaert

    (Columbia University and National Bureau of Economic Research)

  • Campbell R. Harvey

    (Duke University and National Bureau of Economic Research)

  • Angela Ng

    (Hong Kong University of Science and Technology)

Abstract

Contagion is usually defined as correlation between markets in excess of that implied by economic fundamentals; however, there is considerable disagreement regarding the definition of the fundamentals, how they might differ across countries, and the mechanisms that link them to asset returns. Our research starts with a two-factor model with time-varying betas that accommodates various degrees of market integration. We apply this model to stock returns in three different regions: Europe, Southeast Asia, and Latin America. In addition to examining contagion during crisis periods, we document time variation in world and regional market integration and measure the proportion of volatility driven by global, regional, and local factors.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 78 (2005)
Issue (Month): 1 (January)
Pages: 39-70

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Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:1:p:39-70

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Web page: http://www.journals.uchicago.edu/JB/

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