Shocks and systemic influences: contagion in global equity markets in 1998

The transmission of the financial crises in 1998 though international equity markets is estimated through a multi-factor model of financial markets specifically allowing for contagion effects. The application measures the strength of contagion emanating from the Russia crisis of 1998, and the LTCM near collapse, using a panel of 10 emerging and developed financial markets. Pre and post default periods for Russia are distinguished. The results show that contagion is significant and widespread from both crises, although the LTCM crises has more impact on developed than emerging markets. Consistent with the existing literature, regional effects are found to be strong during financial crises. Asian markets are found to be relatively immune from contagion, perhaps reflecting the effect of their own recent crisis

Transmission of Liquidity Shocks: Evidence from the 2007 Subprime Crisis.

We examine the linkages between market and funding liquidity pressures, as well as their interaction with solvency issues surrounding key nancial institutions during the 2007 subprime crisis. A multivari-ate GARCH model is estimated in order to test for the transmission of liquidity shocks across U.S. nancial markets. It is found that the interaction between market and funding illiquidity increases sharply during the recent period of nancial turbulence, and that bank sol-vency becomes important

Empirical modelling of contagion: a review of methodologies

The existing literature promotes a number of alternative methods to test for the presence of contagion during financial market crises. This paper reviews those methods and shows how they are related in a unified framework. A number of extensions are also suggested which allow for multivariate testing, endogenous issues and structural breaks

Contagion in International Bond Markets during the Russian and LTCM Crises

The Russian bond default in August 1998 and the long-term capital management (LTCM) recapitalization announcement in the following month represent an unusual period of volatility in international bond markets with bond spreads increasing dramatically across the globe. Using a latent factor model and a new data set spanning bond markets across Asia, Europe and the Americas, we quantify the contribution of contagion to the spread of these two crises. The maximum amount of contagion experienced by any of the countries investigated is about 17% of total volatility in bond spreads, with the main effects due to the Russian crisis. The results also show that both emerging and developed markets experienced contagion during the period