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Financial markets in time of stress

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  • Reinhart, Carmen
  • Kaminsky, Graciela

Abstract

In this paper, we examine which markets are most synchronized internationally and exhibit the greater extent of comovement. We focus on daily data for four asset markets: bonds, equities, foreign exchange, and domestic money market. Our sample covers thirty-five developed and emerging market countries during 1997-1999. The extent of comovement and responsiveness to external shocks is examined in different ways. To measure the response of these markets to adverse external shocks, we date the peaks in domestic interest rates and bond spreads and the largest daily declines in equity prices and assess the extent of clustering around the same period. We also analyze which markets show evidence of greatest comovement in general, irrespective of whether there are adverse shocks or not.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13869.

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Date of creation: Dec 2002
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Publication status: Published in Journal of Development Economics 2.69(2002): pp. 451-470
Handle: RePEc:pra:mprapa:13869

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Keywords: contagion financial crisis equity prices interest rates exchange rates;

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References

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  1. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper, University Library of Munich, Germany 14000, University Library of Munich, Germany.
  2. Sebastian Edwards & Raul Susmel, 2001. "Volatility Dependence and Contagion in Emerging Equity Markets," NBER Working Papers, National Bureau of Economic Research, Inc 8506, National Bureau of Economic Research, Inc.
  3. Edison, Hali & Reinhart, Carmen M., 2001. "Stopping hot money," Journal of Development Economics, Elsevier, Elsevier, vol. 66(2), pages 533-553, December.
  4. Barry Eichengreen & Andrew K. Rose & Charles Wyplosz, 1996. "Contagious Currency Crises," NBER Working Papers, National Bureau of Economic Research, Inc 5681, National Bureau of Economic Research, Inc.
  5. Reinhart, Carmen, 2000. "The mirage of floating exchange rates," MPRA Paper, University Library of Munich, Germany 13736, University Library of Munich, Germany.
  6. Dornbusch, Rudiger & Park, Yung Chul & Claessens, Stijn, 2000. "Contagion: Understanding How It Spreads," World Bank Research Observer, World Bank Group, World Bank Group, vol. 15(2), pages 177-97, August.
  7. Carmen M. Reinhart, 2000. "Mirage of Floating Exchange Rates," American Economic Review, American Economic Association, American Economic Association, vol. 90(2), pages 65-70, May.
  8. Reinhart, Carmen & Kaminsky, Graciela, 2001. "Bank Lending and Contagion: Evidence from the Asian Crisis," MPRA Paper, University Library of Munich, Germany 7580, University Library of Munich, Germany.
  9. Reinhart, Carmen & Reinhart, Vincent, 1999. "On the use of reserve requirements in dealing with capital flow problems," MPRA Paper, University Library of Munich, Germany 13703, University Library of Munich, Germany.
  10. Eichengreen, Barry & Rose, Andrew & Wyplosz, Charles, 1996. " Contagious Currency Crises: First Tests," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 98(4), pages 463-84, December.
  11. Bank for International Settlements, 1999. "A Review of Financial Market Events in Autumn 1998," CGFS Papers, Bank for International Settlements, Bank for International Settlements, number 12, July.
  12. Frankel, Jeffrey A, 1992. "Measuring International Capital Mobility: A Review," American Economic Review, American Economic Association, American Economic Association, vol. 82(2), pages 197-202, May.
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