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International Capital Mobility and Financial Fragility - Part 6. Are all Forms of Financial Integration Equally Risky in Times of Financial Turmoil?: Asset Price Contagion During the Global Financial Crisis

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  • Rudiger Ahrend
  • Antoine Goujard

Abstract

Using the 2008-09 global financial crisis, this paper examines the role of different forms of international financial integration for asset price contagion in crisis times. Defining contagion as the transmission of financial market movements beyond the co-movements that would occur in “tranquil” times, the paper looks into the presence of contagion in the period of turmoil prior to the fall of Lehman Brothers, in the main crisis period following the Lehman collapse, and in the ensuing late stages of the crisis. The analysis uses bilateral financial and trade linkages and daily data on equity and bond prices for a sample of 46 countries between 2002 and 2011. Bilateral debt integration and common bank lenders are found to have transmitted financial turmoil through equity and bond markets at the height of the crisis. During this period, real trade linkages also increased equity price co-movements. By contrast, no robust evidence is found that equity or FDI integration increased asset price co-movements during the crisis. Flux de capitaux internationaux et fragilité financière - Partie 6. Toutes les formes d'intégration financière sont-elles risquées en cas de chocs financiers? : La contagion des prix des actifs lors de la crise financière Utilisant la crise financière de 2008-09, le papier identifie le rôle de différentes formes d’intégration financière sur la contagion entre les prix d’actifs de différents pays lors des chocs financiers. La contagion est définie comme un changement du rôle des liens financiers ou commerciaux bilatéraux entre la période de crise et la période la précédant. L’analyse distingue la présence éventuelle de contagion durant la période de trouble précédant la faillite de Lehman Brothers, la principale période de crise ayant suivie la faillite de Lehman Brothers et la période ayant succédé à cet épisode. L’application empirique porte sur un échantillon de 46 pays entre 2002 et 2011. L’intégration bilatérale par la dette et la présence de banques créditrices communes apparaissent comme des vecteurs de transmission des chocs pendant la principale période de crise. Au contraire, ni les Investissements Directs Étrangers ni la détention bilatérale de capitaux n’apparaissent significativement liés à une augmentation des co-mouvements des prix d’actifs pendant la crise.

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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 969.

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Date of creation: 20 Jun 2012
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Handle: RePEc:oec:ecoaaa:969-en

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Keywords: external debt; asset price co-movements; foreign direct investments; financial spillovers; trade spillovers; intégration commerciale; intégration financière; co-mouvements des prix d’actifs; dette externe; investissement direct étranger;

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