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Globalization, financial crisis and contagion: time-dynamic evidence from financial markets of developing countries

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  • Asongu Simplice

    ()
    (Yaoundé/Cameroun)

Abstract

Financial integration among economies has the benefit of improving allocation efficiency and diversifying risk. However the recent global financial crisis, considered as the worst since the Great Depression has re-ignited the fierce debate about the merits of financial globalization and its implications for growth especially in developing countries. This paper examines whether equity markets in emerging countries were vulnerable to contagion during the recent financial meltdown. Findings show: (1) with the exceptions of India and Dhaka, Asian markets were worst hit; (2) but for Peru, Venezuela and Columbia, Latin American countries were least affected; (3) Africa and Middle East emerging markets were averagely contaminated with the exceptions of Kenya, Namibia, Nigeria, Morocco, Dubai, Jordan, Israel, Oman, Saudi Arabia and Lebanon. Results have two important policy implications. Firstly, we confirm that Latin America was most prepared to brace the financial crisis, implying their fiscal and monetary policies are desirous of examination and imitation. Secondly, we have confirmed that strategic opening of the current and capital accounts based on empirical evidence for a given region/country as practiced by India is a caution against global economic and financial shocks.

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File URL: http://www.afridev.org/RePEc/agd/agd-wpaper/Globalisation-financial-crisis-and-contagion.-Time-dynamic-evidence-from-financial-markets-of-developing-countries.pdf
File Function: Revised version, 2013
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Bibliographic Info

Paper provided by African Governance and Development Institute. in its series Working Papers with number 11/004.

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Length: 13
Date of creation: 06 Apr 2011
Date of revision:
Publication status: Published in the Journal of Advanced Studies in Finance
Handle: RePEc:agd:wpaper:11/004

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Keywords: Globalization; Financial crisis; Contagion; developing countries; Equity Markets;

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References

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  1. Peter Blair Henry, 2006. "Capital account liberalization: theory, evidence, and speculation," Working Paper Series, Federal Reserve Bank of San Francisco 2007-32, Federal Reserve Bank of San Francisco.
  2. Asongu Simplice, 2011. "Political Crises and Risk of Financial Contagion in Developing Countries: Evidence from Africa," Working Papers, African Governance and Development Institute. 11/003, African Governance and Development Institute..
  3. Mervyn King & Enrique Sentana & Sushil Wadhwani, 1990. "Volatiltiy and Links Between National Stock Markets," NBER Working Papers 3357, National Bureau of Economic Research, Inc.
  4. Collins, Daryl & Biekpe, Nicholas, 2003. "Contagion: a fear for African equity markets?," Journal of Economics and Business, Elsevier, Elsevier, vol. 55(3), pages 285-297.
  5. Kristin Forbes & Roberto Rigobon, 1999. "No Contagion, Only Interdependence: Measuring Stock Market Co-movements," NBER Working Papers 7267, National Bureau of Economic Research, Inc.
  6. Angelos Kanas, 1998. "Linkages between the US and European equity markets: further evidence from cointegration tests," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 8(6), pages 607-614.
  7. Peter Henry, 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Discussion Papers, Stanford Institute for Economic Policy Research 07-004, Stanford Institute for Economic Policy Research.
  8. King, Mervyn A & Wadhwani, Sushil, 1990. "Transmission of Volatility between Stock Markets," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 3(1), pages 5-33.
  9. Simplice A. Asongu, 2012. "The 2011 Japanese earthquake, tsunami and nuclear crisis: Evidence of contagion from international financial markets," Journal of Financial Economic Policy, Emerald Group Publishing, Emerald Group Publishing, vol. 4(4), pages 340-353, December.
  10. M. Ayhan Kose & Eswar S. Prasad & Ashley D. Taylor, 2009. "Thresholds in the Process of International Financial Integration," NBER Working Papers 14916, National Bureau of Economic Research, Inc.
  11. Maurice Obstfeld, 1984. "Rational and Self-Fulfilling Balance-of-Payments Crises," NBER Working Papers 1486, National Bureau of Economic Research, Inc.
  12. Lee, Hsien-Yi & Wu, Hsing-Chi & Wang, Yung-Jang, 2007. "Contagion effect in financial markets after the South-East Asia Tsunami," Research in International Business and Finance, Elsevier, Elsevier, vol. 21(2), pages 281-296, June.
  13. Sergio L. Schmukler, 2004. "Financial globalization: gain and pain for developing countries," Economic Review, Federal Reserve Bank of Atlanta, Federal Reserve Bank of Atlanta, issue Q 2, pages 39 - 66.
  14. James McAndrews & Asani Sarkar & Zhenyu Wang, 2008. "The effect of the Term Auction Facility on the London Inter-Bank Offered Rate," Staff Reports, Federal Reserve Bank of New York 335, Federal Reserve Bank of New York.
  15. Kristin Forbes, 2000. "The Asian Flu and Russian Virus: Firm-level Evidence on How Crises are Transmitted Internationally," NBER Working Papers 7807, National Bureau of Economic Research, Inc.
  16. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1996. "Inflows of capital to developing countries in the 1990s," MPRA Paper 13707, University Library of Munich, Germany.
  17. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency crashes in emerging markets: An empirical treatment," Journal of International Economics, Elsevier, Elsevier, vol. 41(3-4), pages 351-366, November.
  18. Yuliya Demyanyk & Vadym Volosovych, 2006. "Gains from Financial Integration in the European Union: Evidence for New and Old Members," Working Papers, Department of Economics, College of Business, Florida Atlantic University 06009, Department of Economics, College of Business, Florida Atlantic University, revised Aug 2007.
  19. Ji, Philip Inyeob & In, Francis, 2010. "The impact of the global financial crisis on the cross-currency linkage of LIBOR-OIS spreads," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 20(5), pages 575-589, December.
  20. Coulibaly, Brahima, 2009. "Effects of financial autarky and integration: The case of the South Africa embargo," Journal of International Money and Finance, Elsevier, Elsevier, vol. 28(3), pages 454-478, April.
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Cited by:
  1. Asongu, Simplice, 2013. "Globalization and Financial Market Contagion: Evidence from Financial Crisis and Natural Disasters," MPRA Paper 56803, University Library of Munich, Germany.
  2. repec:pra:mprapa:39629 is not listed on IDEAS
  3. Simplice A., Asongu, 2011. "The 2011 Japanese earthquake, tsunami and nuclear crisis: evidence of contagion from international financial markets," MPRA Paper 39630, University Library of Munich, Germany.
  4. Asongu Simplice, 2011. "Political Crises and Risk of Financial Contagion in Developing Countries: Evidence from Africa," Working Papers, African Governance and Development Institute. 11/003, African Governance and Development Institute..
  5. Simplice A, Asongu, 2012. "Globalization and Africa: implications for human development," MPRA Paper 36541, University Library of Munich, Germany.

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