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Financial Spillovers to Emerging Markets during the Global Financial Crisis

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Author Info
Heiko Hesse
Nathaniel Frank

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Abstract

In this paper potential financial linkages between liquidity and bank solvency measures in advanced economies and emerging market (EM) bond and stock markets are analyzedduring the latest crisis. A multivariate GARCH model is estimated in order to gauge the extent of co-movements of these financial variables across markets. The findings indicate that the notion of possible de-coupling (in the financial markets) had been misplaced. While EM stock markets reached their peak in the last quarter of 2007, interlinkages between funding stress and equity markets in advanced economies and EM financial indicators were highly correlated and have seen sharp increases during specific crisis moments.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/104.

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Length: 20 pages
Date of creation: 20 May 2009
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Handle: RePEc:imf:imfwpa:09/104

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Keywords: Banking sector ; Bond markets ; Capital markets ; Cross country analysis ; Developed countries ; Developing countries ; Economic models ; Emerging markets ; Financial crisis ; Liquidity ; Spillovers ; Stock markets ;

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  2. King, Mervyn A & Wadhwani, Sushil, 1990. "Transmission of Volatility between Stock Markets," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 3(1), pages 5-33. [Downloadable!] (restricted)
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  3. Lorenzo Cappiello & Robert F. Engle & Kevin Sheppard, 2006. "Asymmetric Dynamics in the Correlations of Global Equity and Bond Returns," Journal of Financial Econometrics, Oxford University Press, vol. 4(4), pages 537-572. [Downloadable!] (restricted)
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  4. Reinhart, Carmen & Kaminsky, Graciela, 2008. "The center and the periphery: The globalization of financial turmoil," MPRA Paper 14100, University Library of Munich, Germany. [Downloadable!]
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  5. 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. [Downloadable!] (restricted)
  6. Geert Bekaert & Campbell R. Harvey & Angela Ng, 2005. "Market Integration and Contagion," Journal of Business, University of Chicago Press, vol. 78(1), pages 39-70, January. [Downloadable!]
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  7. 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.
  8. 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. [Downloadable!] (restricted)
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  1. Kamil Yilmaz, 2009. "Return and Volatility Spillovers among the East Asian Equity Markets," TÜSİAD-Koç University Economic Research Forum Working Papers 0907, TUSIAD-Koc University Economic Research Forum. [Downloadable!]
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