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Unanticipated Shocks and Systemic Influences: The Impact of Contagion in Global Equity Markets in 1998

Author

Listed:
  • Ms. Brenda Gonzalez-Hermosillo
  • Mr. Vance Martin
  • Ms. Renee Fry
  • Mr. Mardi Dungey

Abstract

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.

Suggested Citation

  • Ms. Brenda Gonzalez-Hermosillo & Mr. Vance Martin & Ms. Renee Fry & Mr. Mardi Dungey, 2003. "Unanticipated Shocks and Systemic Influences: The Impact of Contagion in Global Equity Markets in 1998," IMF Working Papers 2003/084, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2003/084
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    3. John Beirne & Guglielmo Maria Caporale & Marianne Schulze-Ghattas & Nicola Spagnolo, 2013. "Volatility Spillovers and Contagion from Mature to Emerging Stock Markets," Review of International Economics, Wiley Blackwell, vol. 21(5), pages 1060-1075, November.
    4. Cristhian Mellado & Diego Escobari, 2015. "Virtual integration of financial markets: a dynamic correlation analysis of the creation of the Latin American Integrated Market," Applied Economics, Taylor & Francis Journals, vol. 47(19), pages 1956-1971, April.
    5. Mardi Dungey & Rene Fry & Vance L. Martin, 2006. "Correlation, Contagion, and Asian Evidence," Asian Economic Papers, MIT Press, vol. 5(2), pages 32-72, Spring/Su.
    6. Mollah, Sabur & Quoreshi, A.M.M. Shahiduzzaman & Zafirov, Goran, 2016. "Equity market contagion during global financial and Eurozone crises: Evidence from a dynamic correlation analysis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 41(C), pages 151-167.
    7. Lee, Yen-Hsien & Tucker, Alan L. & Wang, David K. & Pao, Hsin-Ting, 2014. "Global contagion of market sentiment during the US subprime crisis," Global Finance Journal, Elsevier, vol. 25(1), pages 17-26.
    8. Luchtenberg, Kimberly F. & Vu, Quang Viet, 2015. "The 2008 financial crisis: Stock market contagion and its determinants," Research in International Business and Finance, Elsevier, vol. 33(C), pages 178-203.
    9. Rainer Masera, 2011. "Taking the moral hazard out of banking: the next fundamental step in financial reform," PSL Quarterly Review, Economia civile, vol. 64(257), pages 105-142.
    10. Wong, Alfred Y-T. & Fong, Tom Pak Wing, 2011. "Analysing interconnectivity among economies," Emerging Markets Review, Elsevier, vol. 12(4), pages 432-442.
    11. Lucey, Brian M. & Voronkova, Svitlana, 2005. "Russian equity market linkages before and after the 1998 crisis: evidence from time-varying and stochastic cointegration tests," BOFIT Discussion Papers 12/2005, Bank of Finland Institute for Emerging Economies (BOFIT).
    12. Christian Espinosa-Méndez & Juan Gorigoitía & João Vieito, 2020. "Stock exchange mergers: a dynamic correlation analysis on Euronext," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 19(2), pages 81-98, May.
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