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Pure Contagion and Investors Shifting Risk Appetite: Analytical Issues and Empirical Evidence

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Author Info
Avinash Persaud
Manmohan S. Kumar
Abstract

This paper discusses a "pure" form of financial contagion, unrelated to economic fundamentals - investors' shifting appetite for risk. It provides an analytical framework for identifying changes in investors' risk appetite and discusses whether it is possible to directly measure them in a way that can enable policy makers to differentiate between financial contagion and domestic fundamentals as the immediate source of a crisis. Daily measures of risk appetite are computed and their usefulness in predicting financial crises is assessed.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 01/134.

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Length: 35 pages
Date of creation: 28 Sep 2001
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Handle: RePEc:imf:imfwpa:01/134

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Keywords: Exchange risk Capital markets Financial crisis

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Franklin Allen & Douglas Gale, 1999. "Financial Contagion," Levine's Working Paper Archive 2092, UCLA Department of Economics. [Downloadable!]
    Other versions:
  2. Glick, Reuven & Rose, Andrew K, 1998. "Contagion and Trade: Why are Currency Crises Regional," CEPR Discussion Papers 1947, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Eichengreen, Barry & Rose, Andrew & Wyplosz, Charles, 1996. " Contagious Currency Crises: First Tests," Scandinavian Journal of Economics, Blackwell Publishing, vol. 98(4), pages 463-84, December.
  4. Robert J. Shiller, 1998. "Human Behavior and the Efficiency of the Financial System," Cowles Foundation Discussion Papers 1172, Cowles Foundation, Yale University. [Downloadable!]
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  5. Kenneth Rogoff, 1999. "International Institutions for Reducing Global Financial Instability," NBER Working Papers 7265, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Manmohan S. Kumar & Paul R. Masson & Marcus Miller, 2000. "Global Financial Crises - Institutions and Incentives," IMF Working Papers 00/105, International Monetary Fund.
  7. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency crashes in emerging markets: An empirical treatment," Journal of International Economics, Elsevier, vol. 41(3-4), pages 351-366, November. [Downloadable!] (restricted)
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  8. Ilan Goldfajn & Rodrigo O. Valdés, 1997. "Capital Flows and the Twin Crises : The Role of Liquidity," IMF Working Papers 97/87, International Monetary Fund.
  9. Francesco Caramazza & Luca Antonio Ricci & Ranil Salgado, 2000. "Trade and Financial Contagion in Currency Crises," IMF Working Papers 00/55, International Monetary Fund.
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  1. Mardi Dungey & Renee Fry & Brenda Gonzales-Hermosillo & Vance L. Martin, 2005. "Shocks And Systemic Influences: Contagion In Global Equity Markets In 1998," CAMA Working Papers 2005-15, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
  2. Valpy FitzGerald & Derya Krolzig, 2003. "Modeling the Demand for Emerging Market Assets," OFRC Working Papers Series 2003fe10, Oxford Financial Research Centre. [Downloadable!]
  3. Matteo Ciccarelli & Alessandro Rebucci, 2003. "Measuring Contagion with a Bayesian Time-Varying Coefficient Model," IMF Working Papers 03/171, International Monetary Fund. [Downloadable!]
    Other versions:
  4. Mardi Dungey & Renee Fry & Vance Martin & Brenda González-Hermosillo, 2003. "Unanticipated Shocks and Systemic Influences: The Impact of Contagion in Global Equity Markets in 1998," IMF Working Papers 03/84, International Monetary Fund. [Downloadable!]
  5. Mark Aguiar & Gita Gopinath, 2004. "Defaultable debt, interest rates and the current account," Proceedings, Federal Reserve Bank of San Francisco, issue Jun. [Downloadable!]
  6. Fernando A. Broner & R. Gaston Gelos & Carmen Reinhart, 2004. "When in Peril, Retrench: Testing the Portfolio Channel of Contagion," NBER Working Papers 10941, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Mohamed Ayadi & Wajih Khallouli & René Sandretto, 2006. "Les déterminants des crises financières récentes des pays émergents," Post-Print halshs-00137700_v1, HAL. [Downloadable!]
  8. Mardi Dungey & Renee Fry & Vance Martin & Brenda González-Hermosillo, 2004. "Characterizing Global Investors' Risk Appetite for Emerging Market Debt During Financial Crises," IMF Working Papers 03/251, International Monetary Fund. [Downloadable!]
  9. S Griffith-Jones (IDS, University of Sussex) and J Leape (LSE), . "Capital Flows to developing countries: does the emperor have clothes?," QEH Working Papers qehwps89, Queen Elizabeth House, University of Oxford. [Downloadable!]
  10. Valpy FitzGerald & Derya Krolzig, 2004. "Modelling the demand for emerging market assets," Money Macro and Finance (MMF) Research Group Conference 2003 29, Money Macro and Finance Research Group. [Downloadable!]
  11. Favero, Carlo A & Kaminska, Iryna & Söderström, Ulf, 2005. "The Predictive Power of the Yield Spread: Further Evidence and A Structural Interpretation," CEPR Discussion Papers 4910, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  12. Mardi Dungey & Renee Fry & Vance Martin & Brenda González-Hermosillo, 2002. "International Contagion Effects from the Russian Crisis and the LTCM Near-Collapse," IMF Working Papers 02/74, International Monetary Fund. [Downloadable!]
  13. Liliana Schumacher & Armando Méndez Morales, 2003. "Market Volatility as a Financial Soundness Indicator: An Application to Israel," IMF Working Papers 03/47, International Monetary Fund. [Downloadable!]
  14. Sofia Babilis & Valpy Fitzgerald, 2005. "Risk Appetite, Home Bias and the Unstable Demand for Emerging Market Assets," International Review of Applied Economics, Taylor and Francis Journals, vol. 19(4), pages 459-476, October. [Downloadable!] (restricted)
  15. Mark Illing & Ying Liu, 2003. "An Index of Financial Stress for Canada," Working Papers 03-14, Bank of Canada. [Downloadable!]
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