International Contagion Effects from the Russian Crisis and the LTCM Near-Collapse
April 1, 2002
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Summary
We examine empirically the episode of extraordinary turbulence in global financial markets during 1998. The analysis focuses on the market assessment of credit risk captured by daily movements in bond spreads for twelve countries. A dynamic latent factor model is estimated using indirect inference to quantify the effects of unanticipated shocks across borders or "contagion," controlling for common global shocks, country-specific shocks and regional factors. The results show that there were substantial international contagion effects resulting from both the Russian and LTCM crises. The proportion of volatility explained by contagion is not necessarily larger in developing than in developed nations.
Subject: Financial crises, Financial institutions, Financial markets, Financial services, International bonds, International capital markets, Securities markets, Yield curve
Keywords: a number of market, Asia and Pacific, asset class, contagion effect, contagion effects, developing market, Eastern Europe, financial crises, financial market crisis, Global, global bond, hedge fund Ltcm, International bonds, International capital markets, international spillovers, LTCM, LTCM crisis, market participant, rate of return, Russia, Securities markets, U.S volatility, wealth effect model, WP, Yield curve
Pages:
48
Volume:
2002
DOI:
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Issue:
074
Series:
Working Paper No. 2002/074
Stock No:
WPIEA0742002
ISBN:
9781451849608
ISSN:
1018-5941
