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Risk Sharing and Financial Contagion in Asia; An Asset Price Perspective

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  • Phurichai Rungcharoenkitkul

Abstract

This paper assesses financial integration in Asia in terms of risk-sharing benefit versus financial-contagion cost. We construct a new measure of risk sharing based on a term structure model, which allows identification of realized stochastic discount factors. Risk sharing is low in Asia, and varies across time and countries, whereas contagion risks are more significant intra-regionally, and relatively stable over the past decade. An overall tradeoff exists between risk sharing and contagion, but the terms of tradeoffs vary across countries, depending on relative economic fluctuations and inflation differentials. Asia, therefore, can potentially enhance risk sharing without raising contagion risk.

Suggested Citation

  • Phurichai Rungcharoenkitkul, 2011. "Risk Sharing and Financial Contagion in Asia; An Asset Price Perspective," IMF Working Papers 11/242, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:11/242
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    Cited by:

    1. Selim Elekdag & Phurichai Rungcharoenkitkul & Yiqun Wu, 2012. "The Evolution of Asian Financial Linkages; Key Determinants and the Role of Policy," IMF Working Papers 12/262, International Monetary Fund.
    2. Mensah, Jones Odei & Premaratne, Gamini, 2014. "Dependence patterns among Banking Sectors in Asia: A Copula Approach," MPRA Paper 60119, University Library of Munich, Germany.
    3. Disyatat, Piti & Rungcharoenkitkul, Phurichai, 2017. "Monetary policy and financial spillovers: Losing traction?," Journal of International Money and Finance, Elsevier, vol. 74(C), pages 115-136.
    4. Alessandro Ferrari & Anna Rogantini Picco, 2016. "International Risk Sharing in the EMU," Working Papers 17, European Stability Mechanism.
    5. Piti Disyatat & Phurichai Rungcharoenkitkul, 2016. "Financial globalisation and monetary independence," BIS Papers chapters,in: Bank for International Settlements (ed.), Expanding the boundaries of monetary policy in Asia and the Pacific, volume 88, pages 213-225 Bank for International Settlements.
    6. Azis, Iwan J., 2013. "Inadequate Regional Financial Safety Nets Reflect Complacency," ADBI Working Papers 411, Asian Development Bank Institute.

    More about this item

    Keywords

    Financial integration; risk sharing; contagion; affine term structure model; financial contagion; stochastic discount; bond; Financial Aspects of Economic Integration;

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