Global Crises and Equity Market Contagion

By Geert Bekaert, Michael Ehrmann, Marcel Fratzscher, Arnaud Mehl. Social Science Research Network, 2012

236 citations recorded by the source corpus.

Using the 2007-09 financial crisis as a laboratory, we analyze the transmission of crises to country-industry equity portfolios in 55 countries. We use a factor model to predict crisis returns, defining unexplained increases in factor loadings and residual correlations as indicative of contagion. We find statistically significant evidence of contagion from US markets and from the global financial sector, but the effects are economically small. By contrast, there has been substantial contagion from domestic equity markets to individual domestic equity portfolios, with its severity inversely related to the quality of countries' economic fundamentals and policies. This confirms the old "wake-up call" hypothesis, with markets and investors focusing substantially more on country-specific characteristics during the crisis.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/855d82688fb2274a1868b727d685207377d6a7e3

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Citations in the corpus

Measuring Bilateral Spillover and Testing Contagion on Sovereign Bond Markets in Europe (2014, background): “First, several studies have argued that the financial crisis has made investors rediscover macroeconomic fundamentals in bond pricing (Bekaert et al., 2011).”
On the International Spillovers of US Quantitative Easing (2018, unknown): “4 See Carlson, Haubrich, Cherny and Wakefiled (2009) for a detailed discussion, Fawley and Neely (2012) for an insightful comparison of different QE policies across advanced countries, and Bekaert et al. (2011) on how monetary policies may affect the transmission of shocks in equity markets.”
Why do some banks contribute more to global systemic risk? (2018, result): “Contrasting these findings, a recent study by Bekaert et al. (2012) on the Subprime crisis does not find economically significant evidence in favor of what the authors label the “U.S. contagion hypothesis”.”
A cross-country analysis of herd behavior in Europe (2014, unknown): “In the aftermath of the global financial crisis, some studies (e.g., Bekaert et al., 2011) have found contagion from countries with similar characteristics as a complement to the wakeup call hypothesis.”
The “Big C”: identifying and mitigating contagion (2012, background): “…and (3) 14 Noteworthy papers analyzing whether contagion has changed over time include: Bekaert and Harvey (1995), Karolyi (2003), Bordo and Murshid (2001), Goetzmann et al. (2005), Quinn and Voth (2008), and Bekaert et al. (2011).”
Rethinking financial contagion: Information transmission mechanism during the COVID-19 pandemic (2020, unknown): “Moreover, other studies analysed spillovers across large selection of markets (e.g. Morales and Andreosso-O’Callaghan, 2014; Bekaert et al., 2011).”
The Pricing of Sovereign Risk and Contagion During the European Sovereign Debt Crisis (2013, background): “This is what the literature has referred to as “wake-up call” contagion or fundamentals contagion (Goldstein 1998, Bekaert et al. 2010).”