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Developing countries’ financial vulnerability to the euro crisis: An event study of equity and bond markets

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  • Joshua Aizenman
  • Yothin Jinjarak
  • Minsoo Lee
  • Donghyun Park

Abstract

The global crisis highlights the continued vulnerability of developing countries to shocks from advanced economies. Just a few years after the global crisis, the eurozone sovereign debt crisis has emerged as the single biggest threat to the global outlook. In this paper, we apply the event study methodology to gauge the scope for financial contagion from the EU to developing countries. More specifically, we estimate the responsiveness of equity and bond markets in developing countries to global crisis news and euro crisis news. Overall, we find that whereas global crisis news had a consistently negative effect on returns of equity and bond markets in developing countries, the effect of euro crisis news was more mixed and limited.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18028.

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Date of creation: May 2012
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Handle: RePEc:nbr:nberwo:18028

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  1. Bertrand Candelon & Amadou N. R. Sy & Rabah Arezki, 2011. "Sovereign Rating News and Financial Markets Spillovers," IMF Working Papers 11/68, International Monetary Fund.
  2. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian T. & Siegel, Stephan, 2013. "The European Union, the Euro, and equity market integration," Journal of Financial Economics, Elsevier, vol. 109(3), pages 583-603.
  3. Iva Petrova & Michael G Papaioannou & Dimitri Bellas, 2010. "Determinants of Emerging Market Sovereign Bond Spreads," IMF Working Papers 10/281, International Monetary Fund.
  4. Rabah Arezki & Bertrand Candelon & Amadou Sy, 2011. "Sovereign Rating News and Financial Markets Spillovers: Evidence from the European Debt Crisis," CESifo Working Paper Series 3411, CESifo Group Munich.
  5. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
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Cited by:
  1. Kristin Forbes, 2012. "The "Big C": Identifying Contagion," NBER Working Papers 18465, National Bureau of Economic Research, Inc.
  2. Beetsma, Roel & Giuliodori, Massimo & de Jong, Frank & Widijanto, Daniel, 2013. "Spread the news: The impact of news on the European sovereign bond markets during the crisis," Journal of International Money and Finance, Elsevier, vol. 34(C), pages 83-101.
  3. Kristin J. Forbes, 2012. "The “Big C”: identifying and mitigating contagion," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 23-87.
  4. Stracca, Livio, 2013. "The global effects of the euro debt crisis," Working Paper Series 1573, European Central Bank.
  5. Swamy, Vighneswara, 2013. "Euro Zone Debt Crisis: Implications for Indian Banking Sector," MPRA Paper 47658, University Library of Munich, Germany.

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