Was it different the second time? An empirical analysis of contagion during the crises in Greece 2009–15

Over the period between end‐2009 and end‐2015, Greece experienced two discernible financial crises. This paper undertakes a correlation analysis of risk premia to investigate the nature and extent of contagion from these crises to other selected Eurozone countries. A commonly expressed view is that the effects of the second crisis were more muted since the systemic risks were seen by markets as being lower. However, using a rolling correlation model, a Dynamic Conditional Correlation GARCH (DCC‐GARCH) model and a t‐copula model we find that this is not the case. Broadly speaking, the contagion effects of the second crisis were at least as large as those associated with the first one.     

External Public Debt,Trade Linkages and Contagion During the Eurozone Crisis

Against the backdrop of the contagion literature, the paper analyses the impact of financial and trade linkages on sovereign bond spreads in the Eurozone crisis. Using quarterly data for a sample of EMU countries during the period 2000–13, we estimate fixed‐effect panel models with Driscoll and Kraay standard errors that are robust to general forms of spatial and temporal dependence. Our main results can be summarised as follows: first, we suggest that the ‘sudden stop’ of capital inflow towards the peripheral sovereign debt triggered a re‐segmentation of financial markets and economic systems along national borders, with negative implications for risk‐sharing and the efficient allocation of capital. The ‘home bias’ effect – that is the increase in the share of sovereign debt held by domestic banks – worsened the country‐specific risk because the twin crisis (sovereign and banking) began to be conceived as more closely intertwined within countries than before. Second, the structure of international trade helps to account for the geographic scope of contagion, even after controlling for macroeconomic and fiscal vulnerabilities. Finally, the ‘substitution effect’ of public debt securities of stand‐alone emerging countries has affected more the sovereign spreads in the core than in the periphery.     

基于Copula理论的金融资产传染效应研究

某一突发性金融事件可能使整个金融市场间的联动程度显著增强,并对一定区域乃至世界范围的经济体系产生传染效应。对此,采用Copula函数方法,通过t-GARCH(1,1)模型对资产收益时序进行过滤,运用非参数估计,分析多变量之间相关结构及尾部相关性的变化进而考察变量间的传染效应。通过对美国次贷危机前后多国证券市场的实证分析,结果表明次贷危机后,美国标准普尔指数与代表性的亚洲证券市场间的联动性显著加强,次贷危机对亚洲股市存在传染效应。     

The Greek Debt Crisis: Likely Causes,Mechanics and Outcomes

We use insights from the literature on currency crises to offer an analytical treatment of the crisis in the market for Greek government bonds. We argue that the crisis itself and its escalating nature are very likely to be the result of: (i) steady deterioration of Greek macroeconomic fundamentals over 2001–09 to levels inconsistent with long‐term EMU participation; and (ii) a double shift in markets’ expectations, from a regime of credible commitment to future EMU participation under an implicit EMU/German guarantee of Greek fiscal liabilities, to a regime of non‐credible EMU commitment without fiscal guarantees, respectively occurring in November 2009 and February/March 2010. We argue that the risk of contagion to other periphery EMU countries is significant; and that without extensive structural reforms, the sustainability of the EMU is in question.     

Immunity and infection: Emerging and developed market sovereign spreads over the Global Financial Crisis

We compare sovereign bond spreads during the international financial crisis across groups drawn from 43 countries, including 20 emerging economies. We extend traditional factor analyses and utilize propensity score matching to select a non-crisis sample for comparison with the crisis sample that is more robust to exogenous crisis dating. We find minimal changes over the crisis period in the average spreads of local-currency-denominated emerging market bonds. In contrast, the spreads of peripheral Eurozone sovereign bonds increased by large amounts and were subject to sovereign risk contagion.     

Looking for contagion in currency futures markets

This article tests whether there are pure contagion effects in both conditional means and volatilities among British pound, Canadian dollar, Deutsche mark, and Swiss franc futures markets during the 1992 ERM crisis. A conditional version of international capital asset pricing model (ICAPM) in the absence of purchasing power parity (PPP) is used to control for economic fundamentals. The empirical results indicate that overall there are no mean spillovers among those futures markets, but they are detected during the crisis period. That is, past return shocks originating in any one of the four markets have no impact on the other three markets during the entire sample period, suggesting that these markets are weak‐form efficient. However, this weak‐form market efficiency fails to hold during the market turmoil, especially for British pound and Swiss franc, and the sources of contagion‐in‐mean effects are mainly due to the return shocks originating in three European currency futures markets. As for the contagion‐in‐volatility, it is detected for British pound only because its conditional volatility is influenced by the negative volatility shocks from Canadian dollar, Deutsche mark, and Swiss franc, with Deutsche mark playing the dominant role in generating these shocks. JEL Classifications: C32; F31; G12. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:957–988, 2003     

Exchange market pressure,commodity prices,and contagion in Latin America

Over the past two decades, Latin American currencies have faced not only pressure to devalue but also periods of uncomfortable appreciation. Domestic macroeconomic factors, as well as global events and contagion, might bear part of the responsibility. This study constructs a monthly index of exchange market pressure (EMP) for four Latin American countries before using vector autoregressive methods to test the influence of commodity prices, macroeconomic variables, and external factors on each country's index. While inflation is an important determinant of EMP, we conclude that Chile and Peru are more likely than Mexico and Brazil to face pressure when commodity prices fall. This supports the idea that these two countries have “commodity currencies” and that their exchange markets are most vulnerable to international contagion.     

希腊债务危机及其对世界经济复苏的冲击

2010年2月初以来,希腊等国的债务危机开始进入人们的视野,并引发欧盟金融市场震荡。希腊等国的债务危机具有重要的历史原因和传染效应,它不仅源于财政赤字过高,而且缺乏独立的货币政策,但最根本的原因是希腊的经济失去了"生产性"。我国应未雨绸缪,提早做好准备,主动积极应对希腊等国的主权债务危机。     

Correlations in emerging market bonds: The role of local and global factors

This paper empirically assesses co-movements in emerging market bond returns and disentangles the roles of external and domestic factors during episodes of heightened market volatility. The conceptual framework, set in the context of asset allocation, allows us to describe the channels through which shocks originating in a particular emerging or mature market are transmitted across countries and markets. We show that a simple measure of cross-country correlations, when presented together with the more commonly used average correlation coefficient, can be more informative during episodes of heightened market volatility. Data for the period 1997–2008 are analysed for evidence of true contagion and common external shocks.     

The Changing Role of Financial Stress,Oil Price,and Gold Price in Financial Contagion among US and BRIC Markets

The objective of this paper is to explore the determining factors behind financial contagion between US and BRIC (Brazil, Russia, India, and China) equity markets. To this end, we investigate the effects of global macroeconomic factors on the time‐varying correlations among these markets obtained by asymmetric dynamic conditional correlation method. Utilizing quantile regression analysis, we examine the determinants of financial contagion at different levels of time‐varying correlations. The results of quantile regression analyses reveal that global financial crisis (GFC) (2008) leads to changes in the dependence structure between dynamic conditional correlations among equity markets and global macroeconomic factors, such as global financial stress, oil prices, and gold prices. Following the GFC, monetary, and fiscal policy changes in the BRIC markets and hence changing macroeconomic risks of these markets are conducive to these changes. Our findings also demonstrate the importance of cross‐market rebalancing channel for information transmission across US and BRIC markets.     

Current Account Adjustment in the Eurozone: Lessons From a Flexible Price Model

This paper discusses the desired size of the internal devaluation in the Eurozone for a scenario of current account adjustment induced by shifts in relative demand. Based on Obstfeld and Rogoff, I develop a four‐region model of the world economy consisting of the Eurozone‐core, Eurozone‐periphery, United States and Asia. In contrast to most of the existing literature, this model structure enables studying the impact of global current account adjustment on the rebalancing process in the Eurozone. In addition, the model allows for movements of factors of production between tradable and non‐tradable sectors. The results point to the important impact of sectoral reallocation and increases in Asian demand on the size of the internal devaluation as well as on the implied length of the adjustment period.     

On the stability of domestic financial market linkages in the presence of time-varying volatility

We analyze the stability of domestic financial linkages between periods of calm and turbulent market conditions. Our model develops a simultaneous test of shift contagion and bi-directional pure contagion, which is applied to the equity and currency markets of a group of East Asian emerging economies. Our results show a great deal of instability in these markets with widespread evidence of pure contagion in both directions. There is less evidence of shift contagion with the transmission of common shocks unchanged between regimes for the majority of countries.     

Oil and stock markets before and after financial crises: A local Gaussian correlation approach

The effect of financial shocks on the cross‐market linkages between oil prices (spot and futures) and stock markets is examined for four major crises. We employ the local Gaussian correlation approach and find that the two markets were regionalized for most of the 1990s and the early 2000s. Flights from stocks to oil occur in all crisis episodes, except the recent global financial crisis. The view that stock and oil markets behave like “a market of one” after the financialization of commodities is further supported by the presence of contagion between US stock markets and all the benchmark oil markets.     

中国证券市场波动的区制关联性

应用单变量和二元向量SW-ARCH模型,本文发现我国证券市场收益率波动具有明显的"区制转移"特征,可以将其分为"高波动"和"低波动"两个区制.在"高波动区制"下,沪深两市间具有明显的波动"溢出"和"传染"特征,市场整体风险强;相反,在"低波动区制"下,市场间主要表现"低系统风险"特征,负相关的波动关联性使证券市场具有较强的风险分散功能和较高的资金配置效率.     

Financial crises and contagion vulnerability of MENA stock markets

This paper examines contagion vulnerability and the international and regional financial linkages of the MENA stock markets. The degree of vulnerability of those markets to global and regional financial crises will have important bearings on the respective economies' growth rate, and on their ability to diversify international and regional portfolios. Granger causality tests and impulse response functions reveal that while the GCC equity markets still offer international investors portfolio diversification potentials, those markets are relatively less vulnerable to global and regional financial crises. Moreover, even though the remaining MENA stock markets of Egypt, Morocco, and Tunisia have matured and are now financially integrated with the world stock markets, they tend to exhibit more vulnerability to regional and international financial crises. Their vulnerability to international financial crises is due, on the one hand, to weak regional integration, and to greater economic and financial integration with the more advanced economies on the other.     

Market integration and contagion: Evidence from Asian emerging stock and foreign exchange markets

This paper examines whether Asian emerging stock markets (India, Korea, Malaysia, Philippines, Taiwan, and Thailand) have become integrated into world capital markets since their official liberalization dates by estimating and testing a dynamic integrated international capital asset pricing model (ICAPM) in the absence of purchasing power parity (PPP) using an asymmetric multivariate GARCH(1,1)-in-Mean approach. Also examined in this paper is whether there are pure contagion effects between stock and foreign exchange markets for each Asian country during the 1997 Asian crisis. The empirical results show that first, both currency and world market risks are priced and time-varying, suggesting that an international asset pricing model under PPP and constant price of risk might give rise to model misspecification. Second, the stock markets for India, Korea, Malaysia, Philippines, and Thailand were segmented from the world capital markets before their liberalization dates, but all six markets have become fully integrated since then. Third, the market liberalization has reduced the cost of capital and price volatility for most of the countries. Finally, as for the contagion effects, strong positive impact of return shocks originating from the domestic stock market to its foreign exchange market during the crisis is found. This dynamic relationship between stock market and foreign exchange market is consistent with stock-oriented exchange rate models.     

The Role of Political Intelligence in Firms’ Export Decisions During the Euro Crisis

Inspired by the literatures on internationalization and absorptive capacity, we develop a model exploring how small firms—during crises—acquire and apply political information to export decisions. We test our model using data collected during the 2012 Eurozone crisis from a sample of 440 British, French, and Swedish SMEs. Findings indicate that firms dependent on the Eurozone for exports and heavily impacted by the crisis engaged in frequent political monitoring. In turn, frequent monitoring leads to the development of formal routines for exploiting political information. Firms with the most formal routines sought new export opportunities beyond the Eurozone. In contrast to previous research into small‐firm internationalization, our study stresses the significance of “shortcut” searching activities, non‐market information, and firms’ decisions to reduce prior investments in export markets.     

Dynamic linkage between the Chinese and global stock markets: A normal mixture approach

The paper provides an empirical framework for analyzing the dynamic linkage between Chinese and thirty major stock markets globally. In doing so, we employ the bivariate normal mixture model, a weighted average of two normal distributions that can reveal both the degree and structure of dependence between markets. We show that the level of dependence strengthened since 2004 in general, whereas the contagion effects spread heterogeneously during the global financial crisis. We also examine potential factors that affect the stability of the linkage by capturing regime switching behavior. The results suggest that business cycle synchrony plays a significant role in increasing the instability of dependence between the Chinese and global stock markets, while the impact of asynchrony is negligible. Additionally, we observe increased dependence and unstable structure, associated with the implementation of China's capital market liberalization policies and RMB exchange rate reform.     

Paradigm Shift in the Eurozone? The Market-Based Convergence Rationale

To prevent divergence in a downturn and help cushion economic shocks, capital markets and banks both need to be integrated and assets diversified across Eurozone member states.     

Dynamic interdependence of ASEAN5 with G5 stock markets

We find ASEAN5 and G5 stock markets are weakly linked in normal conditions. ASEAN5 markets became more connected with G5 markets during global financial crisis, with stronger conditional correlations, a higher level of risk spillover-connectedness and intensive causal risk dependence. By implications, ASEAN5 stocks are both return enhancers and risk diversifiers in boom market conditions. The diversification benefits remain even during crisis times, albeit lesser. Over the longer term, the diversification benefits of a portfolio that includes both ASEAN5 and G5 stocks are recaptured as market linkages revert to some lower levels due to decreased crisis contagion.