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on Financial Markets |
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Issue of 2011‒06‒25
four papers chosen by |
| By: | Geert Bekaert; Michael Ehrmann; Marcel Fratzscher; Arnaud J. Mehl |
| Abstract: | Using the 2007-2009 financial crisis as a laboratory, we analyze the transmission of crises to country-industry equity portfolios in 55 countries. We use an asset pricing framework with global and local factors to predict crisis returns, defining unexplained increases in factor loadings as indicative of contagion. We find evidence of systematic contagion from US markets and from the global financial sector, but the effects are very small. By contrast, there has been systematic and substantial contagion from domestic equity markets to individual domestic equity portfolios, with its severity inversely related to the quality of countries’ economic fundamentals and policies. Consequently, we reject the globalization hypothesis that links the transmission of the crisis to the extent of global exposure. Instead, we confirm the old “wake-up call” hypothesis, with markets and investors focusing substantially more on idiosyncratic, country-specific characteristics during the crisis. |
| JEL: | G15 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17121&r=fmk |
| By: | Kazi, Irfan Akbar; Guesmi, Khaled; Kaabia, Olfa |
| Abstract: | In this paper we investigate the contagion effect between stock markets of U.S and sixteen OECD countries due to Global Financial Crisis (2007-2009). We apply Dynamic Conditional Correlation GARCH model Engle (2002) to daily stock price data (2002-2009). In order to recognize the contagion effect, we test whether the mean of the DCC coefficients in crisis period differs from that in the pre-crisis period. The identification of break point due to the crisis is made by Bai-Perron (1998, 2003) structural break test. We find a significant increase in the mean of dynamic conditional correlation coefficient between U.S and OECD stock markets under study during the crisis period for most of the countries. This proves the existence of contagion between the US and the OECD stock markets. -- |
| Keywords: | Financial crisis,integration,contagion,multivariate GARCH-DCC model |
| JEL: | E44 F15 F36 F41 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201115&r=fmk |
| By: | Nicolaas Groenewold (UWA Business School, The University of Western Australia); James E H Paterson (UWA Business School, The University of Western Australia) |
| Abstract: | The relationship between stock prices and exchange rates is an important topic of long standing. But there are still significant gaps in our knowledge of this area, not least, the ambiguity about the sign of the effect of a change in one of these variables on the other. While there are many possible reasons for this ambiguity, one which we explore in the Australian context in this paper is the omission of commodity prices. We show that a bivariate relationship which omits commodity prices performs badly but that once commodity prices are added to the relationship, our results are plausible and robust. We also throw light on the commodity-currency issue and show that the link from the exchange rate to commodity prices is stronger and more consistent than that in the opposite direction. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:uwa:wpaper:11-07&r=fmk |
| By: | Jeon, Doh-Shin; Lovo, Stefano |
| Abstract: | We present an infinite horizon model that studies the competition between a relatively ineffective incumbent Credit Rating Agency (CRA) and a sequence of entrant CRAs that are potentially more e¤ective but whose ability in appraising default risk is unproven at the time they enter the market. We show that free entry competition in the credit rating business fails in selecting the most competent CRA as long as two conditions are met. First, investors and issuers trust the incumbent CRA to provide a sincere, although imperfect, assessment of issuersdefault risk. Second, CRAs cannot charge higher fees for low rating than for high rating. Under these conditions a rather incompetent CRA can dominate the market without being worried about potentially more competent entrants. We derive policy implications. |
| JEL: | D82 G29 L11 L13 L15 |
| Date: | 2011–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:24498&r=fmk |