Who are the vectors of contagion? Evidence from emerging markets |
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| Institution: | 1. Departament d’Econometria, Estadística i Economia Aplicada, Universitat de Barcelona (UB), Spain;2. School of Finance, Economics and Government, Universidad EAFIT, Medellín, Colombia;3. Faculty of Economics and Business, Universitat Oberta de Catalunya, Spain;1. Audencia Business School, Research Center: Markets Technology and Society, 8 Route de la Joneliere, 44312 Cedex 3, Nantes, France;2. Heriot Watt University, Accounting, Economics and Finance SEEC, CFI, Edinburgh, Scotland EH14 4AS, UK;1. School of Business, Pusan National University, Busan 46241, Republic of Korea;2. College of Social Science, Hansung University, Seoul 02876, Republic of Korea;3. College of Business Administration, University of Seoul, Seoul 02504, Republic of Korea;1. School of Finance and Accounting, Fuzhou University of International Studies and Trade, Fuzhou, China;2. International Business School, Beijing Foreign Studies University, Beijing, China |
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| Abstract: | We test whether foreign investors are the vectors of contagion to emerging markets, as various theoretical models imply. We also explore the role of local institutions and individuals during and after contagion days. To do this, we propose a novel measure of contagion and estimate its dynamic relationship with the net purchases of each of the three groups of investors, from 2007 to 2016, in seven emerging markets. We find that foreign investors bring contagion by actively selling and impacting local prices on days of large declines in the US stock market and the days following. Local institutions are also net sellers on the day of contagion, while individuals act as the main liquidity providers, but institutions become net buyers soon after. |
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