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Was the Russian Financial Crisis Contagious?

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  • Ulugbek Olimov

    (Center for Economic Research)

Abstract

Using daily data from the stock markets of nine European transition economies, this paper tests for stock market contagion during the 1998 Russian financial crisis by utilizing both univariate and bivariate correlation analysis. The results of the linear model indicate that there is no evidence of contagion, while the bivariate analysis, based on the newly developed Corsetti-Pericoli-Sbracia (CPS) test, reveals the presence of structural breaks between the Russian and Czech stock markets. Moreover, crisis-post crisis comparison analysis shows that contagion occurred after the Russian crisis. This paper proposes to label such an effect as a 'reverse' contagion. The results of Monte Carlo experiments show that the linear model performs poorly under the null hypothesis of interdependence and systematically under-rejects in the case of small test sizes. In sum, at least for the examined parameter values, it appears that the CPS test has less size distortion than the linear model.

Suggested Citation

  • Ulugbek Olimov, 2004. "Was the Russian Financial Crisis Contagious?," International Finance 0409003, EconWPA.
  • Handle: RePEc:wpa:wuwpif:0409003 Note: Type of Document - pdf; pages: 17
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    File URL: http://econwpa.repec.org/eps/if/papers/0409/0409003.pdf
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    References listed on IDEAS

    as
    1. Brian H. Boyer & Michael S. Gibson & Mico Loretan, 1997. "Pitfalls in tests for changes in correlations," International Finance Discussion Papers 597, Board of Governors of the Federal Reserve System (U.S.).
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    The Russian crisis; stock market contagion;

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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