Market Integration and ContagionContagion is usually defined as correlation between markets in excess of what would be implied by economic fundamentals; however, there is considerable disagreement regarding the definitions of the fundamentals, how the fundamentals might differ across countries, and the mechanisms that link the fundamentals to asset returns. Our research takes, as a starting point, a two-factor model with time-varying betas that accommodates various degrees of market integration between different markets. We apply this model to stock returns in three different regions: Europe, South-East Asia, and Latin America. In addition to providing new insights on contagion during crisis periods, we document patterns through time in world and regional market integration and measure the proportion of volatility driven by global, regional, and local factors. |
From inside the book
Results 1-3 of 11
Page 4
... risk parameters to be time - varying as : BPX + qX - W- = BP2X + qX ( 1 − W - 1 ) , ( 4 ) ( 5 ) where w- denotes the market capitalization of the U.S. , relative to the total world market capitalization , at time t - 1 . In ( 4 ) - ( 5 ) ...
... risk parameters to be time - varying as : BPX + qX - W- = BP2X + qX ( 1 − W - 1 ) , ( 4 ) ( 5 ) where w- denotes the market capitalization of the U.S. , relative to the total world market capitalization , at time t - 1 . In ( 4 ) - ( 5 ) ...
Page 20
... risk loadings for the countries we examine . Our results suggest that there is no evidence of additional contagion caused by the Mexican crisis . However , we find economically meaningful increases in residual correlation , especially ...
... risk loadings for the countries we examine . Our results suggest that there is no evidence of additional contagion caused by the Mexican crisis . However , we find economically meaningful increases in residual correlation , especially ...
Page 23
... Risk in Equity Markets , Review of Financial Studies , 13 , 1-42 . Boyer , M. S. , B. H. Gibson , and M. Loretan , 1999 , Pitfalls in Tests for Changes in Correlations , International Finance Discussion Paper , 597 , Board of Governors ...
... Risk in Equity Markets , Review of Financial Studies , 13 , 1-42 . Boyer , M. S. , B. H. Gibson , and M. Loretan , 1999 , Pitfalls in Tests for Changes in Correlations , International Finance Discussion Paper , 597 , Board of Governors ...
Common terms and phrases
abnormally negative regional abnormally negative U.S. America emerging market Asia Asian crisis Asian Latin American Asian or Latin asset pricing model benchmark beta with respect betas and correlations CAPM Colombia Comovements conditional betas conditional expected conditional variance contagion correlations and variance country-specific covariance crisis period dividend yield dummy Europe emerging market index Equity Markets Europe/Turkey excess correlation expected excess return factor model idiosyncratic residuals idiosyncratic shocks includes a constant increase in correlation increased correlation information variables International Equity James Heckman joint test Journal of Finance Latin America Latin America emerging Latin American countries Mexican crisis model is estimated NBER Working Papers negative regional unexpected null hypothesis p-value P₁ regional betas regional portfolio regional residuals residual correlations return residuals return shocks second sub-sample significant Solnik specification tests Taiwan U.S. and regional U.S. dollars U.S. market unexpected market returns v₁ v₂ variance ratios Venezuela w₁ Wald test William N