Financial Contagion and Investor "Learning" : An Empirical Investigation

Author/Editor:

Ritu Basu

Publication Date:

December 1, 2002

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

There have been several episodes of financial market "contagion" in the 1990s. Is contagion driven by herd behavior? Does it reflect fundamental economic linkages between countries? Or are episodes of contagion driven by investor learning and risk reassessment about a select group of countries? We pursue these questions by studying the persistence in the spillover of shocks following the bond market developments in Hong Kong SAR in 1997. Our results suggest that this contagion, at least for a few countries, was a consequence of adverse sentiment shifts arising from investor learning and was not merely driven by changes in fundamentals.

Series:

Working Paper No. 02/218

Subject:

English

Publication Date:

December 1, 2002

ISBN/ISSN:

9781451875157/1018-5941

Stock No:

WPIEA2182002

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

36

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