Financial Markets in Times of Stress

61 Pages Posted: 25 Oct 2001 Last revised: 2 Dec 2022

See all articles by Graciela Kaminsky

Graciela Kaminsky

George Washington University - Department of Economics; National Bureau of Economic Research (NBER)

Carmen Reinhart

Harvard University - Center for Business and Government; Centre for Economic Policy Research (CEPR); World Bank; University of Maryland - School of Public Affairs; National Bureau of Economic Research (NBER); International Monetary Fund (IMF); Peterson Institute for International Economics; Harvard University, Harvard Kennedy School (HKS), Belfer Center for Science and International Affairs (BCSIA) ; Harvard University - Harvard Kennedy School (HKS)

Date Written: October 2001

Abstract

In this paper, we examine which markets are most synchronized internationally and exhibit the greater extent of comovement. We focus on daily data for four asset markets: bonds, equities, foreign exchange, and domestic money market. Our sample covers thirty-five developed and emerging market countries during 1997-1999. The extent of comovement and responsiveness to external shocks is examined in different ways. To measure the response of these markets to adverse external shocks, we date the peaks in domestic interest rates and bond spreads and the largest daily declines in equity prices and assess the extent of clustering around the same period. We also analyze which markets show evidence of greatest comovement in general, irrespective of whether there are adverse shocks or not.

Suggested Citation

Kaminsky, Graciela and Reinhart, Carmen and Reinhart, Carmen and Reinhart, Carmen and Reinhart, Carmen and Reinhart, Carmen and Reinhart, Carmen and Reinhart, Carmen and Reinhart, Carmen, Financial Markets in Times of Stress (October 2001). NBER Working Paper No. w8569, Available at SSRN: https://ssrn.com/abstract=288482

Graciela Kaminsky (Contact Author)

George Washington University - Department of Economics ( email )

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Carmen Reinhart

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