Skip to main content

Abstract

Emerging markets (EM) are experiencing continued high economic growth that accompanies strong corporate earnings growth, usually associated with large financial assets returns. Moreover, this class of assets is offering a broader diversification to international portfolios by usually being only weakly correlated with the assets of developed countries. These particular features have greatly enhanced the attractiveness of EM to the financial industry, scientific community, and other stakeholders. Sullivan (2008) even advises developed-world investors to allocate more capital to those countries, if that is indeed the case.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

eBook
USD 16.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 109.00
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 109.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  • Ang, A & Bekaert, G (2002), ‘International Asset Allocation with Regime Shifts’, Review of Financial Studies, vol. 15, no. 4, p. 1137.

    Article  Google Scholar 

  • Bekaert, G & Harvey, C (2003), ‘Emerging Markets Finance’, Journal of Empirical Finance, vol. 10, no. 1–2, pp. 3–56.

    Article  Google Scholar 

  • Bekaert, G, Harvey, C & Ng, A (2005), ‘A Market Integration and Cointegration’, Journal of Business, vol. 78, pp. 39–69.

    Article  Google Scholar 

  • Billio, M & Caporin, M (2005), ‘Multivariate Markov Switching Dynamic Conditional Correlation GARCH Representations for Contagion Analysis’, Statistical Methods and Applications, vol. 14, no. 2, pp. 145–161.

    Article  Google Scholar 

  • Billio M & Pellizon, L (2003), ‘Volatility and Shocks Spillover Before and After EMU in European Stock Markets’, Journal of Multinational Financial Management, vol. 13, no. 4–5, pp. 323–340.

    Google Scholar 

  • Bollerslev, T (1990), ‘Modelling the Coherence in Short-Run Nominal Exchange Rates: A Multivariate Generalized Arch Model’, The Review of Economics and Statistics, vol. 72, no. 3, pp. 498–505.

    Article  Google Scholar 

  • Boyer, B, Gibson, M & Loretan, M (1999), ‘Pitfalls in Tests for Changes in Correlations’, Federal Reserve Board, IFS Discussion Paper No. 597R.

    Google Scholar 

  • Boyer, B, Kumagai, T & Yuan, K (2006), ‘How Do Crises Spread? Evidence from Accessible and Inaccessible Stock Indices’, The Journal of Finance, vol. 61, no. 2, pp. 957–1003.

    Article  Google Scholar 

  • Chesnay F & Jondeau, E (2001), ‘Does Correlation Between Stock Returns Really Increase During Turbulent Periods?’, Economic Notes, vol. 30, no. 1, pp. 53–80.

    Article  Google Scholar 

  • Chiang, T, Jeon, B & Li, H (2007), ‘Dynamic Correlation Analysis of Financial Contagion: Evidence from Asian Markets’, Journal of International Money and Finance, vol. 26, no. 7, pp. 1206–1228.

    Article  Google Scholar 

  • Christoffersen, P, Errunza, V, Jacobs, K & Langlois, H (2012), ‘Is the Potential for International Diversification Disappearing? A Dynamic Copula’, Review of Financial Studies, vol. 25, no. 12, pp. 3711–3751.

    Article  Google Scholar 

  • Conover, C M (2011), ‘Investment Issues in Emerging Markets: A Review’, The Research Foundation of CFA Institute Literature Review, vol. 6, no. 1, pp. 1–27.

    Google Scholar 

  • Corsetti, G, Percolo, M & Sbracia, M (2001), ‘Correlation Analysis of Financial Contagion: What One Should Know Before Running a Test’. Mimeo, University of Rome.

    Google Scholar 

  • Corsetti, G, Percolo, M & Sbracia, M (2005), ‘Some Contagion, Some Interdependence: More Pitfalls in Tests of Financial Contagion’, Journal of International Money and Finance, vol. 24, no. 8, pp. 1177–1199.

    Article  Google Scholar 

  • Darolles, S, Dubecq, J & Gourieroux, C (2013), ‘Contagion Analysis in the Banking Sector’, Mimeo, CREST.

    Google Scholar 

  • Darolles, S, Gagliardini, P & Gourieroux, C (2013), ‘Hedge Funds Survival: Between Frailty and Contagion’, Mimeo, CREST.

    Google Scholar 

  • Davis J H, Aliagia-Diaz, R, Cole, C W & Shanahan, J (2010), ‘Investing in Emerging Markets: Evaluating the Allure of Rapid Economic Growth’, Vanguard Research, Working Paper.

    Google Scholar 

  • Dempster, A, Laird, N & Rubin, D (1977), ‘Maximum Likelihood from Incomplete Data via the EM Algorithm, Journal of the Royal Statistical Society Series B (Methodological), vol. 39, no. 1, pp. 1–38.

    Google Scholar 

  • Diebold, F & Nerlove, M (1989), ‘The Dynamics of Exchange Rate Volatility: A Multivariate Latent-Factor ARCH Model’, Journal of Applied Econometrics, vol. 4, no. 1, pp. 1–21.

    Article  Google Scholar 

  • Dungey M, Martin, V & Pagan, A (2000), ‘A Multivariate Latent Factor Decomposition of International Bond Yield Spreads’, Journal of Applied Econometrics, vol. 15, no. 6, pp. 697–715.

    Article  Google Scholar 

  • Dungey, M, Fry, R, Gonzalez-Hermosillo, B & Martin, V (2002), ‘The Transmission of Contagion in Developed and Developing International Bond Markets’ in Committee on the Global Financial System (ed.), Risk Measurement and Systemic Risk, Proceeding of the Third Joint Central Bank Research Conference, Bank for International Settlements, pp. 61–74.

    Google Scholar 

  • Dungey, M, Fry, R, Gonzalez-Hermosillo, B & Martin, V (2003), ‘Unanticipated Shocks and Systemic Influences: The Impact on Contagion in Global Equity Markets in 1998’, Working Paper, International Monetary Fund (IMF), WP/03/84.

    Google Scholar 

  • Dungey, M & Martin, V (2004), ‘A Multifactor Model of Exchange Rates with Unanticipated Shocks: Measuring Contagion in the East Asian Crisis’, Journal of Emerging Market Finance, vol. 3, no. 3, pp. 305–330.

    Article  Google Scholar 

  • Dungey, M, Fry, R, Gonzalez-Hermosillo, B & Martin, V (2005), ‘Empirical Modelling of Contagion: A Review of Methodologies’, Quantitative Finance, vol. 5, no. 1, pp. 9–24.

    Article  Google Scholar 

  • Dungey, M, Fry, R, Gonzalez-Hermosillo, B & Martin, V (2006), ‘International Contagion Effect from the Russian Crisis and the LTCM Near-Collapse’, Journal of Financial Stability, vol. 2, no. 1, pp. 1–27.

    Article  Google Scholar 

  • Dungey, M, Milunovich, G, Thorp, S & Yang, M (2012), ‘Endogenous Crisis Dating and Contagion Using Smooth Transition Structural GARCH’, Mimeo, UTAS.

    Google Scholar 

  • Edwards, S & Susmel, R (2001), ‘Volatility Dependence and Contagion in Emerging Equity Markets’, Journal of Development Economics, vol. 66, no. 2, pp. 505–532.

    Article  Google Scholar 

  • Engle, R (2002), ‘Dynamic Conditional Correlation’, Journal of Business and Economic Statistics, vol. 20, no. 3, pp. 339–350.

    Article  Google Scholar 

  • Engle, R & Kroner, K (1995), ‘Multivariate Simultaneous Generalized ARCH’, Econometric Theory, vol. 11, no. 1, pp. 122–150.

    Article  Google Scholar 

  • Eun, C S & Lee, J (2010), ‘Mean-Variance Convergence Around the World’, Journal of Banking & Finance, vol. 34, no. 4, pp. 856–870.

    Article  Google Scholar 

  • Forbes, K J & Rigobon, R (2002), ‘No Contagion, Only Interdependence: Measuring Stock Market Comovements’, Journal of Finance, vol. 57, no. 5, pp. 2223–2261.

    Article  Google Scholar 

  • Gardini, A & De Angelis, L (2012), ‘A Statistical Procedure for Testing Financial Contagion’, Statistica, vol. 1, pp. 37–61.

    Google Scholar 

  • Goetzmann, W N, Li, L & Rouwenhorst, K G (2005), ‘Long-Term Global Market Correlations’, Journal of Business, vol. 78, no. 1, pp. 1–38.

    Article  Google Scholar 

  • Henry, P B & Kannan, P (2008), ‘Growth and Returns in Emerging Markets’, in Ito, E and Rose, A K (eds), International Financial Issues in the Pacific Rim: Global Imbalances, Financial Liberalization and Exchange Rate Policy, National Bureau of Economic Research, vol. 17, pp. 241–265.

    Chapter  Google Scholar 

  • Jeanne, O & Masson, P (2000), ‘Currency Crises, Sunspots and Markov-Switching Regimes’, Journal of International Economics, vol. 50, no. 2, pp. 327–350.

    Article  Google Scholar 

  • Kenourgios, D, Samitas, A & Paltalidis, N (2011), ‘Financial Crises and Stock Market Contagion in a Multivariate Time-Varying Asymmetric Framework’, Journal of International Financial Markets, Institutions and Money, vol. 21, no. 1, pp. 92–106.

    Article  Google Scholar 

  • Loretan, M & English, W (2000), ‘Evaluating “Correlation Breakdowns” During Periods of Market Volatility’, Federal Reserve Board, International Finance Discussion Paper No. 658.

    Google Scholar 

  • Masson, P (1999a), ‘Contagion: Macroeconomic Models with Multiple Equilibria’, Journal of International Money and Finance, vol. 18, pp. 587–602.

    Article  Google Scholar 

  • Masson, P (1999b), ‘Contagion: Monsoonal Effects, Spillovers, and Jumps Between Multiple Equilibria’ in Agenor, P R, Miller, M, Vines, D & Weber, A (eds), The Asian Financial Crisis: Causes, Contagion and Consequences, Cambridge University Press, Cambridge.

    Google Scholar 

  • Mody A & Taylor, M (2003), ‘Common Vulnerabilities’, Discussion Paper, Centre for Economic Policy Research, London.

    Google Scholar 

  • Naoui, K, Liouane, N & Brahim, S (2010), ‘A Dynamic Conditional Correlation Analysis of Financial Contagion: The Case of the Subprime Credit Crisis’, International Journal of Economics and Finance, vol. 2, no. 3, pp. 85–96.

    Article  Google Scholar 

  • Ozkan, F G & Unsal, D F (2012), ‘Global Financial Crisis, Financial Contagion, and Emerging Markets’, Working Paper, International Monetary Fund.

    Google Scholar 

  • Pelletier, D (2006), ‘Regime Switching for Dynamic Correlations’, Journal of Econometrics, vol. 131, no. 1–2, pp. 445–473.

    Article  Google Scholar 

  • Ramchand, L & Susmel, R (1998), ‘Volatility and Cross Correlation Across Major Stock Markets’, Journal of Empirical Finance, vol. 5, no. 4, pp. 397–416.

    Article  Google Scholar 

  • Ross, R (1911), The Prevention of Malaria, John Murray, London.

    Google Scholar 

  • Sharpe, W (1964), ‘Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk’, Journal of Finance, vol. 19, no. 3, pp. 425–442.

    Google Scholar 

  • Sullivan, R (2008), ‘Taming Global Village Risk’, Journal of Portfolio Management, vol. 34, no. 4, pp. 58–67.

    Article  Google Scholar 

  • Solnik, B (1974), ‘The International Pricing of Risk: An Empirical Investigation of the World Capital Market Structure’, Journal of Finance, vol. 29, no. 2, pp. 365–378.

    Article  Google Scholar 

  • Wang, K & Nguyen Thi, T (2007), ‘Testing for Contagion Under Asymmetric Dynamics: Evidence from the Stock markets Between US and Taiwan’, Physica A: Statistical Mechanics and Its Applications, vol. 376 (C), pp. 422–432.

    Article  Google Scholar 

Download references

Authors

Editor information

Editors and Affiliations

Copyright information

© 2015 Serge Darolles, Jérémy Dudek, and Gaëlle Le Fol

About this chapter

Cite this chapter

Darolles, S., Dudek, J., Fol, G.L. (2015). Contagion in Emerging Markets. In: Finch, N. (eds) Emerging Markets and Sovereign Risk. Palgrave Macmillan, London. https://doi.org/10.1057/9781137450661_3

Download citation

Publish with us

Policies and ethics