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The Global Crisis and Equity Market Contagion

Listed author(s):
  • Geert Bekaert
  • Michael Ehrmann
  • Marcel Fratzscher
  • Arnaud Mehl

We analyze the transmission of the financial crisis of 2007 to 2009 to 415 country-industry equity portfolios. We use a factor model to predict crisis returns, defining unexplained increases in factor loadings and residual correlations as indicative of contagion. While we find evidence of contagion from the U.S. and the global financial sector, the effects are small. By contrast, there has been substantial contagion from domestic markets to individual domestic portfolios, with its severity inversely related to the quality of countries' economic fundamentals. This confirms the "wake-up call" hypothesis, with markets focusing more on country-specific characteristics during the crisis.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.434767.de/dp1352.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1352.

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Length: 50 p.
Date of creation: 2014
Handle: RePEc:diw:diwwpp:dp1352
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