Financial Contagion and the Real Economy
The global financial crisis of 2008 was a crisis affecting both the financial sector and the “real economy”. This paper analyzes the transmission of unexpected shocks from the financial sector in the US to other countries and sectors. We test the hypothesis that the financial crisis spread from the financial sector to the real economy by infecting financial stocks and real economy stocks across most financial markets. The empirical analysis comprising ten sectors in 25 major developed and emerging stock markets shows that the crisis led to an increased co-movement of unexpected shocks and thus contagion in financial stocks globally. In contrast, the evidence for contagion from the financial sector to other sectors is weak and most sectors exhibit a decreased transmission of shocks during the financial crisis. The findings suggest that investors differentiated across sectors and countries despite the severity of the financial crisis and the increased level of uncertainty.
|Date of creation:||May 2010|
|Contact details of provider:|| Postal: Crawford Building, Lennox Crossing, Building #132, Canberra ACT 2601|
Phone: +61 2 6125 4705
Fax: +61 2 6125 5448
Web page: http://cama.crawford.anu.edu.au
More information through EDIRC
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.:
- Taimur Baig & Ilan Goldfajn, 1999.
"Financial Market Contagion in the Asian Crisis,"
IMF Staff Papers,
Palgrave Macmillan, vol. 46(2), pages 1-3.
- Taimur Baig & Ilan Goldfajn, 1998. "Financial Market Contagion in the Asian Crisis," IMF Working Papers 98/155, International Monetary Fund.
- Ilan Goldfajn & Taimur Baig, 1999. "Financial market contagion in the Asian crisis," Textos para discussão 400, Department of Economics PUC-Rio (Brazil).
- Pesaran, M. Hashem & Pick, Andreas, 2007. "Econometric issues in the analysis of contagion," Journal of Economic Dynamics and Control, Elsevier, vol. 31(4), pages 1245-1277, April.
- Pesaran, M.H. & Pick, A., 2004. "Econometric Issues in the Analysis of Contagion," Cambridge Working Papers in Economics 0402, Faculty of Economics, University of Cambridge.
- Hashem Pesaran & Andreas Pick, 2004. "Econometric Issues in the Analysis of Contagion," Money Macro and Finance (MMF) Research Group Conference 2004 67, Money Macro and Finance Research Group.
- M. Hashem Pesaran & Andreas Pick, 2004. "Econometric Issues in the Analysis of Contagion," CESifo Working Paper Series 1176, CESifo Group Munich.
- John B. Taylor & John C. Williams, 2009. "A black swan in the money market," Proceedings, Federal Reserve Bank of San Francisco, issue Jan.
- John C. Williams & John B. Taylor, 2009. "A Black Swan in the Money Market," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 58-83, January.
- John B. Taylor & John C. Williams, 2008. "A Black Swan in the Money Market," NBER Working Papers 13943, National Bureau of Economic Research, Inc.
- John B. Taylor & John C. Williams, 2008. "A black swan in the money market," Working Paper Series 2008-04, Federal Reserve Bank of San Francisco.
- Dungey, Mardi & Milunovich, George & Thorp, Susan, 2010. "Unobservable shocks as carriers of contagion," Journal of Banking & Finance, Elsevier, vol. 34(5), pages 1008-1021, May.
- 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.
- Geert Bekaert & Campbell R. Harvey, 2003. "Market Integration and Contagion," NBER Working Papers 9510, National Bureau of Economic Research, Inc.
- John Taylor & John Williams, 2008. "Further Results on a Black Swan in the Money Market," Discussion Papers 07-046, Stanford Institute for Economic Policy Research.
- Brian H. Boyer & Tomomi Kumagai & Kathy Yuan, 2006. "How Do Crises Spread? Evidence from Accessible and Inaccessible Stock Indices," Journal of Finance, American Finance Association, vol. 61(2), pages 957-1003, 04.
- Markwat, Thijs & Kole, Erik & van Dijk, Dick, 2009. "Contagion as a domino effect in global stock markets," Journal of Banking & Finance, Elsevier, vol. 33(11), pages 1996-2012, November.
- Markwat, T.D. & Kole, H.J.W.G. & van Dijk, D.J.C., 2008. "Contagion as Domino Effect in Global Stock Markets," ERIM Report Series Research in Management ERS-2008-071-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
- Kee-Hong Bae & G. Andrew Karolyi & René M. Stulz, 2003. "A New Approach to Measuring Financial Contagion," Review of Financial Studies, Society for Financial Studies, vol. 16(3), pages 717-763, July.
- Kee-Hong Bae & G. Andrew Karolyi & Rene M. Stulz, 2000. "A New Approach to Measuring Financial Contagion," NBER Working Papers 7913, National Bureau of Economic Research, Inc.
- Kee-Hong Bae & G. Andrew Karolyi & Rene M. Stulz, 2001. "A new approach to measuring financial contagion," Proceedings 743, Federal Reserve Bank of Chicago.
- Baur, Dirk & Jung, Robert C., 2006. "Return and volatility linkages between the US and the German stock market," Journal of International Money and Finance, Elsevier, vol. 25(4), pages 598-613, June.
- Glosten, Lawrence R & Jagannathan, Ravi & Runkle, David E, 1993. " On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks," Journal of Finance, American Finance Association, vol. 48(5), pages 1779-1801, December.
- Lawrence R. Glosten & Ravi Jagannathan & David E. Runkle, 1993. "On the relation between the expected value and the volatility of the nominal excess return on stocks," Staff Report 157, Federal Reserve Bank of Minneapolis.
- 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.
- Vance L. Martin & Brenda Gonzalez-Hermosillo, & Mardi Dungey & Renee A. Fry, 2004. "Empirical Modelling of Contagion: A Review of Methodologies," Econometric Society 2004 Australasian Meetings 243, Econometric Society.
- Mardi Dungey & Renee Fry & Vance Martin & Brenda Gonzalez-Hermosillo, 2004. "Empirical Modeling of Contagion; A Review of Methodologies," IMF Working Papers 04/78, International Monetary Fund.
- Martin, V. & Dungey & M., 2004. "Empirical Modelling of Contagion: A Review of Methodologies," Econometric Society 2004 Far Eastern Meetings 574, Econometric Society.
- Chandar, Nandini & Patro, Dilip K. & Yezegel, Ari, 2009. "Crises, contagion and cross-listings," Journal of Banking & Finance, Elsevier, vol. 33(9), pages 1709-1729, September.
- Mardi Dungey & George Milunovich & Susan Thorp, 2008. "Unobservable Shocks as Carriers of Contagion: A Dynamic Analysis Using Identified Structural GARCH," NCER Working Paper Series 22, National Centre for Econometric Research.
- 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.
- Paulo Horta & Carlos Mendes & Isabel Vieira, 2010. "Contagion effects of the subprime crisis in the European NYSE Euronext markets," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 9(2), pages 115-140, August.
- Paulo Horta & Carlos Mendes & Isabel Vieira, 2009. "Contagion Effects of the Subprime Crisis in the European Nyse-Euronext Markets," CEFAGE-UE Working Papers 2009_01, University of Evora, CEFAGE-UE (Portugal).
- Baur, Dirk G. & Fry, Renée A., 2009. "Multivariate contagion and interdependence," Journal of Asian Economics, Elsevier, vol. 20(4), pages 353-366, September.
- Rodriguez, Juan Carlos, 2007. "Measuring financial contagion: A Copula approach," Journal of Empirical Finance, Elsevier, vol. 14(3), pages 401-423, June. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:een:camaaa:2010-16. 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: (Cama Admin)
If references are entirely missing, you can add them using this form.