Contagion and Causality: An Empirical Investigation of Four Asian Crisis Episodes

25 Pages Posted: 23 Jun 2001

See all articles by Harald Sander

Harald Sander

University of Applied Sciences Cologne

Stefanie Kleimeier

Maastricht University - Department of Finance; Open Universiteit; Univ. of Stellenbosch Business School

Date Written: July 28, 2000

Abstract

Our study extends on conventional measures of contagion defined as a marked increase of cross-market correlation by directly investigating changing causality pattern by using the Granger-causality methodology. Our results show that the Asian crisis first established new and changed causality patterns that were not present before the crises on a regional base. Moreover, in some cases it even appeared that in the post-crisis period formerly unrelated markets became co-integrated, pointing to a changed perception of emerging country risk. Furthermore, it is shown that while the initial impact of the Asian crisis appeared to be changing only the regional causality pattern the additional impact of the Russian crisis appeared to have changed the causality pattern in an even less predictable way crossing continents at random and thus pointing to the important role of international financial markets in regional and global financial contagion.

Keywords: contagion, financial crisis, currency crisis, sovereign bond spreads, Granger causality, cointegration

JEL Classification: F31, F32, F34, G15

Suggested Citation

Sander, Harald and Kleimeier, Stefanie, Contagion and Causality: An Empirical Investigation of Four Asian Crisis Episodes (July 28, 2000). Available at SSRN: https://ssrn.com/abstract=274611 or http://dx.doi.org/10.2139/ssrn.274611

Harald Sander (Contact Author)

University of Applied Sciences Cologne ( email )

Claudiusstrrasse 1
50678 Cologne
Germany
+49 221 82753419 (Phone)
+49 221 82753131 (Fax)

Stefanie Kleimeier

Maastricht University - Department of Finance ( email )

Maastricht, 6200 MD
Netherlands

Open Universiteit

Valkenburgerweg 177
Heerlen, 6419 AT
Netherlands

Univ. of Stellenbosch Business School

Carl Cronjé Drive
CAPE TOWN, Cape Town 7535
South Africa