Transmission of the Financial and Sovereign Debt Crises to the EMU: Stock Prices, CDS Spreads and Exchange Rates
This paper tests for the transmission of the 2007-2010 financial and sovereign debt crises to fifteen EMU countries. We use daily data from 2003 to 2010 on country financial and non-financial stock market indexes. First, we find strong evidence of crisis transmission to European non-financials from US non-financials, whereas the increase in dependence of European financials on US financials is rather limited. Second, in order to test how the sovereign debt crisis affected stock market developments we split the crisis in pre- and post-Lehman sub periods. Results show that financials become significantly more dependent on changes in Greek CDS spreads after Lehman's collapse, compared to the pre-Lehman sub period. However, this increase is not present for non-financials. Third, before the crisis euro appreciations are associated with European stock market decreases, whereas during the crisis this is reversed. Finally, the reversal in the relationship between the Eurodollar exchange rate and stock prices seems to have been triggered by Lehman's collapse.
|Date of creation:||Mar 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.dnb.nl/en/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Vance L. Martin & Mardi Dungey, 2007. "Unravelling financial market linkages during crises," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(1), pages 89-119.
- Dunne, Peter & Hau, Harald & Moore, Michael, 2010. "International order flows: Explaining equity and exchange rate returns," Journal of International Money and Finance, Elsevier, vol. 29(2), pages 358-386, March.
- Michael P. Dooley & Michael M. Hutchison, 2009.
"Transmission of the U.S. Subprime Crisis to Emerging Markets: Evidence on the Decoupling-Recoupling Hypothesis,"
NBER Working Papers
15120, National Bureau of Economic Research, Inc.
- Dooley, Michael & Hutchison, Michael, 2009. "Transmission of the U.S. subprime crisis to emerging markets: Evidence on the decoupling-recoupling hypothesis," Journal of International Money and Finance, Elsevier, vol. 28(8), pages 1331-1349, December.
- Kee-Hong Bae & G. Andrew Karolyi & Rene M. Stulz, 2001.
"A new approach to measuring financial contagion,"
743, Federal Reserve Bank of Chicago.
- Dornbusch, Rudiger & Fischer, Stanley, 1980. "Exchange Rates and the Current Account," American Economic Review, American Economic Association, vol. 70(5), pages 960-71, December.
- Engle, Robert F & Ito, Takatoshi & Lin, Wen-Ling, 1990.
"Meteor Showers or Heat Waves? Heteroskedastic Intra-daily Volatility in the Foreign Exchange Market,"
Econometric Society, vol. 58(3), pages 525-42, May.
- Robert F. Engle & Takatoshi Ito & Wen-Ling Lin, 1988. "Meteor Showers or Heat Waves? Heteroskedastic Intra-Daily Volatility in the Foreign Exchange Market," NBER Working Papers 2609, National Bureau of Economic Research, Inc.
- Michel Beine & Gunther G. Capelle-Blancard & Hélène Raymond, 2008.
"International nonlinear causality between stock markets,"
ULB Institutional Repository
2013/167466, ULB -- Universite Libre de Bruxelles.
- Michel Beine & Gunther Capelle-Blancard & Helene Raymond, 2008. "International nonlinear causality between stock markets," The European Journal of Finance, Taylor & Francis Journals, vol. 14(8), pages 663-686.
- Kristin Forbes & Roberto Rigobon, 1999.
"No Contagion, Only Interdependence: Measuring Stock Market Co-movements,"
NBER Working Papers
7267, National Bureau of Economic Research, Inc.
- 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.
- Marcello Pericoli & Massimo Sbracia, 2003.
"A Primer on Financial Contagion,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 17(4), pages 571-608, 09.
- Masih, Rumi & Masih, Abul M. M., 2001. "Long and short term dynamic causal transmission amongst international stock markets," Journal of International Money and Finance, Elsevier, vol. 20(4), pages 563-587, August.
- Hamao, Yasushi & Masulis, Ronald W & Ng, Victor, 1990. "Correlations in Price Changes and Volatility across International Stock Markets," Review of Financial Studies, Society for Financial Studies, vol. 3(2), pages 281-307.
- Ferreira, Miguel A. & Gama, Paulo M., 2007. "Does sovereign debt ratings news spill over to international stock markets?," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 3162-3182, October.
- Adrian Blundell-Wignall & Patrick Slovik, 2010. "The EU Stress Test and Sovereign Debt Exposures," OECD Working Papers on Finance, Insurance and Private Pensions 4, OECD Publishing.
- Edda Zoli & Silvia Sgherri, 2009. "Euro Area Sovereign Risk During the Crisis," IMF Working Papers 09/222, International Monetary Fund.
When requesting a correction, please mention this item's handle: RePEc:dnb:dnbwpp:287. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rob Vet)
If references are entirely missing, you can add them using this form.