Risk Sharing and Financial Contagion in Asia : An Asset Price Perspective

Author/Editor:

Phurichai Rungcharoenkitkul

Publication Date:

October 1, 2011

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

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:

This paper assesses financial integration in Asia in terms of risk-sharing benefit versus financial-contagion cost. We construct a new measure of risk sharing based on a term structure model, which allows identification of realized stochastic discount factors. Risk sharing is low in Asia, and varies across time and countries, whereas contagion risks are more significant intra-regionally, and relatively stable over the past decade. An overall tradeoff exists between risk sharing and contagion, but the terms of tradeoffs vary across countries, depending on relative economic fluctuations and inflation differentials. Asia, therefore, can potentially enhance risk sharing without raising contagion risk.

Series:

Working Paper No. 11/242

Subject:

English

Publication Date:

October 1, 2011

ISBN/ISSN:

9781463922634/1018-5941

Stock No:

WPIEA2011242

Format:

Paper

Pages:

41

Please address any questions about this title to publications@imf.org