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Financial Spillovers to Emerging Markets During the Global Financial Crisis

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  • Nathaniel Frank
  • Heiko Hesse

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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Bibliographic Info

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

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Length: 20
Date of creation: 01 May 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/104

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Keywords: Emerging markets; Liquidity; Banking sector; Developed countries; Developing countries; Economic models; Spillovers; Stock markets; bond; stock market; financial crisis; financial institutions; contagion; equity markets; financial markets; bond spreads; financial contagion; global financial crisis; asset markets; financial crises; hedge; sovereign bond; equity market; financial indicators; financial market; money market; hedge funds; rating agencies; bond markets; stock market volatility; bond spread; financial distress; financial stability; contingent liabilities; interbank money markets; credit booms; money markets; bond returns; systemic crisis; systemic risk; stock market crash; bonds; foreign equity; recession; foreign bond; asian crisis; international bond markets; emerging stock markets; high-yield bonds; currency depreciation; moral hazard;

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References

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  1. Lorenzo Cappiello & Robert F. Engle & Kevin Sheppard, 2006. "Asymmetric Dynamics in the Correlations of Global Equity and Bond Returns," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 4(4), pages 537-572.
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  4. John Beirne & Guglielmo Maria Caporale & Marianne Schulze-Ghattas & Nicola Spagnolo, 2013. "Volatility Spillovers and Contagion from Mature to Emerging Stock Markets," Review of International Economics, Wiley Blackwell, vol. 21(5), pages 1060-1075, November.
  5. 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.
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  10. 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.
  11. Marcello Pericoli & Massimo Sbracia, 2001. "A Primer on Financial Contagion," Temi di discussione (Economic working papers) 407, Bank of Italy, Economic Research and International Relations Area.
  12. Reinhart, Carmen & Kaminsky, Graciela, 2008. "The center and the periphery: The globalization of financial turmoil," MPRA Paper 14100, University Library of Munich, Germany.
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  14. 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.
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