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Developing countries’ financial vulnerability to the eurozone 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 period and eurozone crisis news. Overall, we find that whereas global crisis period had a consistently negative effect on returns of equity and bond markets in developing countries, the effect of eurozone crisis news was more mixed and limited.

Suggested Citation

  • Joshua Aizenman & Yothin Jinjarak & Minsoo Lee & Donghyun Park, 2016. "Developing countries’ financial vulnerability to the eurozone crisis: an event study of equity and bond markets," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 19(1), pages 1-19, January.
    • Handle: RePEc:taf:jecprf:v:19:y:2016:i:1:p:1-19
    DOI: 10.1080/17487870.2015.1018831
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    Cited by:

    1. Handika, Rangga & Soepriyanto, Gatot & Havidz, Shinta Amalina Hazrati, 2019. "Are cryptocurrencies contagious to Asian financial markets?," Research in International Business and Finance, Elsevier, vol. 50(C), pages 416-429.
    2. Chopra, Monika & Mehta, Chhavi, 2022. "Is the COVID-19 pandemic more contagious for the Asian stock markets? A comparison with the Asian financial, the US subprime and the Eurozone debt crisis," Journal of Asian Economics, Elsevier, vol. 79(C).
    3. Mardi Dungey & Moses Kangogo & Vladimir Volkov, 2022. "Dynamic effects of network exposure on equity markets," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 12(4), pages 569-629, December.
    4. 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).
    5. Thai-Ha Le & Donghyun Park & Cong-Phu-Khanh Tran & Binh Tran-Nam, 2018. "The Impact of the Hai Yang Shi You 981 Event on Vietnam’s Stock Markets," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 17(3_suppl), pages 344-375, December.
    6. Wolfinger, Julia & Köhler, Ekkehard A. & Feld, Lars P. & Thomas, Tobias, 2018. "57 Channels (And Nothin On): Does TV-News on the Eurozone affect Government Bond Yield Spreads?," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181610, Verein für Socialpolitik / German Economic Association.
    7. Mustafa Okur & Ali Köse & Özgür Akpinar, 2021. "The Soundness of Financial Institutions In The Fragile Five Countries," International Journal of Business Research and Management (IJBRM), Computer Science Journals (CSC Journals), vol. 12(3), pages 89-102, June.
    8. Cayon, Edgardo & Thorp, Susan & Wu, Eliza, 2018. "Immunity and infection: Emerging and developed market sovereign spreads over the Global Financial Crisis," Emerging Markets Review, Elsevier, vol. 34(C), pages 162-174.
    9. Xiurong Chen & Aimin Hao & Yali Li, 2020. "The impact of financial contagion on real economy-An empirical research based on combination of complex network technology and spatial econometrics model," PLOS ONE, Public Library of Science, vol. 15(3), pages 1-20, March.
    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. Minh Thi Hong Dinh, 2023. "How Does Market Cap Play Its Role in Returns during COVID-19? The Case of Norway," JRFM, MDPI, vol. 16(9), pages 1-13, September.
    12. Kangogo, Moses & Volkov, Vladimir, 2022. "Detecting signed spillovers in global financial markets: A Markov-switching approach," International Review of Financial Analysis, Elsevier, vol. 82(C).
    13. Niels Gilbert, 2019. "Euro area sovereign risk spillovers before and after the ECB's OMT announcement," DNB Working Papers 636, Netherlands Central Bank, Research Department.

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