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Market Integration and Contagion

Author

Listed:
  • Geert Bekaert

    (Columbia University and National Bureau of Economic Research)

  • Campbell R. Harvey

    (Duke University and National Bureau of Economic Research)

  • Angela Ng

    (Hong Kong University of Science and Technology)

Abstract

Contagion is usually defined as correlation between markets in excess of that implied by economic fundamentals; however, there is considerable disagreement regarding the definition of the fundamentals, how they might differ across countries, and the mechanisms that link them to asset returns. Our research starts with a two-factor model with time-varying betas that accommodates various degrees of market integration. We apply this model to stock returns in three different regions: Europe, Southeast Asia, and Latin America. In addition to examining contagion during crisis periods, we document time variation in world and regional market integration and measure the proportion of volatility driven by global, regional, and local factors.

Suggested Citation

  • Geert Bekaert & Campbell R. Harvey & Angela Ng, 2005. "Market Integration and Contagion," The Journal of Business, University of Chicago Press, vol. 78(1), pages 39-70, January.
  • Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:1:p:39-70
    DOI: 10.1086/426519
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    References listed on IDEAS

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    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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