Contagion: Evidence from the Bond Market

49 Pages Posted: 3 Oct 2005

See all articles by George Theocharides

George Theocharides

Cyprus International Institute of Management (CIIM)

Date Written: September 5, 2007

Abstract

Using Treasury and corporate bond market data, I examine the propagation of firm-specific shocks as well as market-wide shocks between 1995-2003, testing the implications of previously proposed channels of contagion. I find little support for the economic fundamental hypothesis. Consistent with the information transmission and liquidity-shock hypotheses, I find evidence of flight to quality during the event periods. However, in contrast to the prediction of the liquidity shock hypothesis, the corporate bond market seems to be more liquid during event periods. These findings are more in favor of the information channel as a means of inducing contagion.

Keywords: Contagion, Financial Crisis, Flight to Quality, Information Flow, Bond Market

JEL Classification: G14, G22, G33

Suggested Citation

Theocharides, George, Contagion: Evidence from the Bond Market (September 5, 2007). Available at SSRN: https://ssrn.com/abstract=811548 or http://dx.doi.org/10.2139/ssrn.811548

George Theocharides (Contact Author)

Cyprus International Institute of Management (CIIM) ( email )

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HOME PAGE: http://www.ciim.ac.cy/georghio

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