Unanticipated Shocks and Systemic Influences: The Impact of Contagion in Global Equity Markets in 1998, Issues 2003-2084
International Monetary Fund, Apr 1, 2003 - Financial crises - 27 pages
August to September 1998 has been characterized as one of the worst episodes of global financial distress in decades. This paper investigates the transmission of the Russian and the LTCM crises through global equity markets using a panel of 14 developing and industrial countries. The results show that contagion was systemic during the period, with industrial countries providing the dominant cross-country transmission linkages. Both crises reinforced each other, highlighting the importance of studying them jointly. An implication of the empirical results is that models of contagion that exclude industrial countries are potentially misspecified and may yield misleading outcomes.
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actual equity returns Argentina autoregressive processes bond markets Brazil channels Cohen and Shin contagion from Russia contagion in equity contribution of contagion correlation matrix data set descriptive statistics designed to identify Dungey Eastern Europe eigen decomposition emerging markets empirical results equation equity market returns factor model Financial System 1999 Gallant and Tauchen GARCH conditional variances Germany global equity markets global financial markets Global Financial System hedge funds Hong Kong SAR idiosyncratic factors idiosyncratic shocks Indonesia Japan Kaminsky and Reinhart Korea Latin America linkages LTCM crisis LTCM period Mexico missing observations model of contagion moments are designed natural logarithms Netherlands Non-LTCM Period parameter estimates percent Poland Rijckeghem Russian and LTCM Russian bond default Russian crisis Schnabel and Shin set of moments simulated equity returns Stock Exchange structure of equity Table II.2 Thailand total volatility transmission mechanism transmission of contagion transmission of shocks U.S. banks unanticipated shocks United Kingdom variable