A New Approach to Measuring Financial Contagion

Kee‐Hong Bae; G. Andrew Karolyi; Reneé M. Stulz

doi:10.1093/rfs/hhg012

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A New Approach to Measuring Financial Contagion

Kee‐Hong Bae¹; G. Andrew Karolyi²; Reneé M. Stulz²

¹ Korea University · ² The Ohio State University

Review of Financial Studies 2003

This article proposes a new approach to evaluate contagion in financial markets. Our measure of contagion captures the coincidence of extreme return shocks across countries within a region and across regions. We characterize the extent of contagion, its economic significance, and its determinants using a multinomial logistic regression model. Applying our approach to daily returns of emerging markets during the 1990s, we find that contagion is predictable and depends on regional interest rates, exchange rate changes, and conditional stock return volatility. Evidence that contagion is stronger for extreme negative returns than for extreme positive returns is mixed. Copyright 2003, Oxford University Press.

DOI: 10.1093/rfs/hhg012
Volume: 16 (3)
Pages: 717-763
Language: en
Export: BibTeX
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