IDEAS home Printed from https://ideas.repec.org/a/eee/riibaf/v32y2014icp83-105.html
   My bibliography  Save this article

The effects of news events on market contagion: Evidence from the 2007–2009 financial crisis

Author

Listed:
  • Chevapatrakul, Thanaset
  • Tee, Kai-Hong

Abstract

In this paper, we use the quantile regression technique along with coexceedance, a contagion measure, to assess the extent to which news events contribute to contagion in the stock markets during the crisis period between 2007 and 2009. Studies have shown that, not only the subprime crisis leads to a global recession, but the effects on the global stock markets have also been significant. We track the news events, both in the UK and the US, using the global recession timeline. We observe that the news events related to ad hoc bailouts of individual banks from the UK have a contagion effect throughout the period for most of the countries under investigation. This, however, is not found to be the case for the news events originating from the US. Our findings regarding the evidence of contagion effects in the UK reinforce the argument that spreads and contagion—an outcome of the risk perception of financial markets—are solely a result of the behaviour of investors or other financial market participants.

Suggested Citation

  • Chevapatrakul, Thanaset & Tee, Kai-Hong, 2014. "The effects of news events on market contagion: Evidence from the 2007–2009 financial crisis," Research in International Business and Finance, Elsevier, vol. 32(C), pages 83-105.
    • Handle: RePEc:eee:riibaf:v:32:y:2014:i:c:p:83-105
    DOI: 10.1016/j.ribaf.2014.03.003
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0275531914000178
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ribaf.2014.03.003?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jorge A. Chan-Lau & Donald J. Mathieson & James Y. Yao, 2004. "Extreme Contagion in Equity Markets," IMF Staff Papers, Palgrave Macmillan, vol. 51(2), pages 1-8.
    2. Minford, Patrick & Meenagh, David & Le, Vo Phuong Mai, 2012. "What causes banking crises? An empirical investigation," CEPR Discussion Papers 9057, C.E.P.R. Discussion Papers.
    3. Frederic S. Mishkin, 2011. "Over the Cliff: From the Subprime to the Global Financial Crisis," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 49-70, Winter.
    4. Barry Eichengreen & Andrew K. Rose & Charles Wyplosz, 1996. "Contagious Currency Crises," NBER Working Papers 5681, National Bureau of Economic Research, Inc.
    5. Bollerslev, Tim & Engle, Robert F & Wooldridge, Jeffrey M, 1988. "A Capital Asset Pricing Model with Time-Varying Covariances," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 116-131, February.
    6. Koenker, Roger & Bassett, Gilbert, Jr, 1982. "Robust Tests for Heteroscedasticity Based on Regression Quantiles," Econometrica, Econometric Society, vol. 50(1), pages 43-61, January.
    7. Fabio Busetti & Andrew Harvey, 2011. "When is a Copula Constant? A Test for Changing Relationships," Journal of Financial Econometrics, Oxford University Press, vol. 9(1), pages 106-131, Winter.
    8. Aït-Sahalia, Yacine & Andritzky, Jochen & Jobst, Andreas & Nowak, Sylwia & Tamirisa, Natalia, 2012. "Market response to policy initiatives during the global financial crisis," Journal of International Economics, Elsevier, vol. 87(1), pages 162-177.
    9. Kristin J. Forbes & Roberto Rigobon, 2002. "No Contagion, Only Interdependence: Measuring Stock Market Comovements," Journal of Finance, American Finance Association, vol. 57(5), pages 2223-2261, October.
    10. Baur, Dirk & Schulze, Niels, 2005. "Coexceedances in financial markets--a quantile regression analysis of contagion," Emerging Markets Review, Elsevier, vol. 6(1), pages 21-43, April.
    11. William Cheung & Scott Fung & Shih-Chuan Tsai, 2010. "Global capital market interdependence and spillover effect of credit risk: evidence from the 2007-2009 global financial crisis," Applied Financial Economics, Taylor & Francis Journals, vol. 20(1-2), pages 85-103.
    12. Mardi Dungey & Renee Fry & Brenda Gonzalez-Hermosillo & Vance Martin, 2005. "Empirical modelling of contagion: a review of methodologies," Quantitative Finance, Taylor & Francis Journals, vol. 5(1), pages 9-24.
    13. Ser-Huang Poon, 2004. "Extreme Value Dependence in Financial Markets: Diagnostics, Models, and Financial Implications," The Review of Financial Studies, Society for Financial Studies, vol. 17(2), pages 581-610.
    14. Busettti, F. & Harvey, A., 2007. "Tests of time-invariance," Cambridge Working Papers in Economics 0701, Faculty of Economics, University of Cambridge.
    15. P. Dontis-Charitos & S. R. Jory & T. N. Ngo & K. B. Nowman, 2013. "A multi-country analysis of the 2007--2009 financial crisis: empirical results from discrete and continuous time models," Applied Financial Economics, Taylor & Francis Journals, vol. 23(11), pages 929-950, June.
    16. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
    17. Tae-Hwan Kim, & Christophe Muller, 2012. "Bias Transmission and Variance Reduction in Two-Stage Quantile Regression," AMSE Working Papers 1221, Aix-Marseille School of Economics, France.
    18. Paul C. Tetlock, 2007. "Giving Content to Investor Sentiment: The Role of Media in the Stock Market," Journal of Finance, American Finance Association, vol. 62(3), pages 1139-1168, June.
    19. Eli M Remolona & Michela Scatigna & Eliza Wu, 2007. "Interpreting sovereign spreads," BIS Quarterly Review, Bank for International Settlements, March.
    20. Patrick McGuire & Martijn A Schrijvers, 2003. "Common factors in emerging market spreads," BIS Quarterly Review, Bank for International Settlements, December.
    21. Klomp, Jeroen, 2013. "Government interventions and default risk: Does one size fit all?," Journal of Financial Stability, Elsevier, vol. 9(4), pages 641-653.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jayech, Selma, 2016. "The contagion channels of July–August-2011 stock market crash: A DAG-copula based approach," European Journal of Operational Research, Elsevier, vol. 249(2), pages 631-646.
    2. Sila Alan, Nazli & Karagozoglu, Ahmet K. & Korkmaz, Sibel, 2016. "Growing pains: The evolution of new stock index futures in emerging markets," Research in International Business and Finance, Elsevier, vol. 37(C), pages 1-16.
    3. Valizadeh, Pourya & Karali, Berna & Ferreira, Susana, 2017. "Ripple effects of the 2011 Japan earthquake on international stock markets," Research in International Business and Finance, Elsevier, vol. 41(C), pages 556-576.
    4. Ye, Wuyi & Luo, Kebing & Liu, Xiaoquan, 2017. "Time-varying quantile association regression model with applications to financial contagion and VaR," European Journal of Operational Research, Elsevier, vol. 256(3), pages 1015-1028.
    5. Derbali, Abdelkader & Hallara, Slaheddine, 2016. "Systemic risk of European financial institutions: Estimation and ranking by the Marginal Expected Shortfall," Research in International Business and Finance, Elsevier, vol. 37(C), pages 113-134.
    6. Huang, Xuan & An, Haizhong & Fang, Wei & Gao, Xiangyun & Wang, Lijun & Sun, Xiaoqi, 2016. "Impact assessment of international anti-dumping events on synchronization and comovement of the Chinese photovoltaic stocks," Renewable and Sustainable Energy Reviews, Elsevier, vol. 59(C), pages 459-469.
    7. Iwanicz-Drozdowska, Małgorzata & Rogowicz, Karol & Kurowski, Łukasz & Smaga, Paweł, 2021. "Two decades of contagion effect on stock markets: Which events are more contagious?," Journal of Financial Stability, Elsevier, vol. 55(C).
    8. Zbigniew Korzeb, 2014. "Influence Of The Economic And Financial Condition Of Strategic Shareholders Upon The Market Value Of Commercial Banks In The Polish Banking Sector," "e-Finanse", University of Information Technology and Management, Institute of Financial Research and Analysis, vol. 10(2), pages 38-43, August.
    9. Caporale, Guglielmo Maria & Sousa, Ricardo M., 2016. "Consumption, wealth, stock and housing returns: Evidence from emerging markets," Research in International Business and Finance, Elsevier, vol. 36(C), pages 562-578.
    10. Tony-Okeke, Uchenna & Ahmadu-Bello, Jaliyyah & Niklewski, Jacek & Rodgers, Timothy, 2018. "Financial contagion and capital asset pricing in Africa: The impact of the 2007–09 and Euro-Zone crises on natural resources sector Beta in African emerging markets," Research in International Business and Finance, Elsevier, vol. 45(C), pages 54-61.
    11. Ngwu, Franklin N. & Chen, Zheyang, 2016. "Regulation of securitisation in China: Learning from the US experience," Research in International Business and Finance, Elsevier, vol. 37(C), pages 477-488.
    12. Jiang, Hai & Tang, Shenfeng & Li, Lifang & Xu, Fangming & Di, Qian, 2022. "Re-examining the Contagion Channels of Global Financial Crises: Evidence from the Twelve Years since the US Subprime Crisis," Research in International Business and Finance, Elsevier, vol. 60(C).
    13. Zhang, Yi & Zhou, Long & Chen, Yajiao & Liu, Fang, 2022. "The contagion effect of jump risk across Asian stock markets during the Covid-19 pandemic," The North American Journal of Economics and Finance, Elsevier, vol. 61(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Thanaset Chevapatrakul & Kai-Hong Tee, 2014. "The Effects of News Events on Market Contagion: Evidence from the 2007-2009 Financial Crisis," Discussion Papers 2014/08, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    2. Harvey, A., 2008. "Dynamic distributions and changing copulas," Cambridge Working Papers in Economics 0839, Faculty of Economics, University of Cambridge.
    3. Ye, Wuyi & Luo, Kebing & Liu, Xiaoquan, 2017. "Time-varying quantile association regression model with applications to financial contagion and VaR," European Journal of Operational Research, Elsevier, vol. 256(3), pages 1015-1028.
    4. Mardi Dungey & Rene Fry & Vance L. Martin, 2006. "Correlation, Contagion, and Asian Evidence," Asian Economic Papers, MIT Press, vol. 5(2), pages 32-72, Spring/Su.
    5. Dungey, Mardi & Gajurel, Dinesh, 2015. "Contagion and banking crisis – International evidence for 2007–2009," Journal of Banking & Finance, Elsevier, vol. 60(C), pages 271-283.
    6. Broto, Carmen & Pérez-Quirós, Gabriel, 2015. "Disentangling contagion among sovereign CDS spreads during the European debt crisis," Journal of Empirical Finance, Elsevier, vol. 32(C), pages 165-179.
    7. Cai, Charlie X. & Mobarek, Asma & Zhang, Qi, 2017. "International stock market leadership and its determinants," Journal of Financial Stability, Elsevier, vol. 33(C), pages 150-162.
    8. Dungey, Mardi & Gajurel, Dinesh, 2014. "Equity market contagion during the global financial crisis: Evidence from the world's eight largest economies," Economic Systems, Elsevier, vol. 38(2), pages 161-177.
    9. Baur, Dirk G., 2013. "The structure and degree of dependence: A quantile regression approach," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 786-798.
    10. Baur, Dirk G. & Schulze, Niels, 2009. "Financial market stability--A test," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(3), pages 506-519, July.
    11. Apostolos Thomadakis, 2012. "Measuring Financial Contagion with Extreme Coexceedances," School of Economics Discussion Papers 1112, School of Economics, University of Surrey.
    12. Woon Sau Leung & Nicholas Taylor, 2013. "Testing for contagion: the impact of US structured markets on international financial markets," Chapters, in: Adrian R. Bell & Chris Brooks & Marcel Prokopczuk (ed.), Handbook of Research Methods and Applications in Empirical Finance, chapter 11, pages 256-284, Edward Elgar Publishing.
    13. Sunil S. Poshakwale & Anandadeep Mandal, 2017. "Sources of time varying return comovements during different economic regimes: evidence from the emerging Indian equity market," Review of Quantitative Finance and Accounting, Springer, vol. 48(4), pages 859-892, May.
    14. Mink, Mark, 2015. "Measuring stock market contagion: Local or common currency returns?," Emerging Markets Review, Elsevier, vol. 22(C), pages 18-24.
    15. Christiansen, Charlotte & Ranaldo, Angelo, 2009. "Extreme coexceedances in new EU member states' stock markets," Journal of Banking & Finance, Elsevier, vol. 33(6), pages 1048-1057, June.
    16. Mohammad Karimi & Marcel‐Cristian Voia, 2019. "Empirics of currency crises: A duration analysis approach," Review of Financial Economics, John Wiley & Sons, vol. 37(3), pages 428-449, July.
    17. Dungey, Mardi & Milunovich, George & Thorp, Susan & Yang, Minxian, 2015. "Endogenous crisis dating and contagion using smooth transition structural GARCH," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 71-79.
    18. de Bandt,O. & Malik, S., 2010. "Is there Evidence of Shift-Contagion in International Housing Markets?," Working papers 295, Banque de France.
    19. Salvatore Dell’Erba & Emanuele Baldacci & Tigran Poghosyan, 2013. "Spatial spillovers in emerging market spreads," Empirical Economics, Springer, vol. 45(2), pages 735-756, October.
    20. Caporin, Massimiliano & Pelizzon, Loriana & Ravazzolo, Francesco & Rigobon, Roberto, 2018. "Measuring sovereign contagion in Europe," Journal of Financial Stability, Elsevier, vol. 34(C), pages 150-181.

    More about this item

    Keywords

    Credit crisis; Coexceedance; Quantile regression; News events; Risk perception;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G01 - Financial Economics - - General - - - Financial Crises

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:riibaf:v:32:y:2014:i:c:p:83-105. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ribaf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.