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The Global Crisis and Equity Market Contagion
Author(s) -
BEKAERT GEERT,
EHRMANN MICHAEL,
FRATZSCHER MARCEL,
MEHL ARNAUD
Publication year - 2014
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12203
Subject(s) - equity (law) , financial crisis , financial contagion , economics , monetary economics , financial market , emerging markets , financial system , financial economics , finance , macroeconomics , political science , law
ABSTRACT We analyze the transmission of the 2007 to 2009 financial crisis to 415 country‐industry equity portfolios. We use a factor model to predict crisis returns, defining unexplained increases in factor loadings and residual correlations as indicative of contagion. While we find evidence of contagion from the United States and the global financial sector, the effects are small. By contrast, there has been substantial contagion from domestic markets to individual domestic portfolios, with its severity inversely related to the quality of countries’ economic fundamentals. This confirms the “wake‐up call” hypothesis, with markets focusing more on country‐specific characteristics during the crisis.