Are Foreigners the Vectors of Contagion? A Study of Six Emerging Markets

37 Pages Posted: 11 Dec 2018

See all articles by Diego A. Agudelo

Diego A. Agudelo

Universidad EAFIT - School of Economics and Finance - Center for Research in Economic & Finance (CIEF); Universidad EAFIT

Damier Múnera

Universidad EAFIT - School of Economics and Finance - Center for Research in Economic & Finance (CIEF)

Multiple version iconThere are 2 versions of this paper

Date Written: December 6, 2016

Abstract

We investigate for the role of Foreigners, Local Institutions and Local individuals in days of Contagion in a set of six emerging markets from 2007 to 2016. We propose a new and intuitive continuous measure of Contagion based on the probability of a coincidence of daily negative returns in both the S&P500 and the local index, in excess of what can be explained by fundamentals. Using a VAR setting, we find that Foreigners sells induce Contagion, and that they keep selling in the following days. We also find evidence of Foreigners acting as the transmitters of large drops in the US stock market to emerging ones. Institutions also contribute to Contagion days with net sales, but they become net buyers from the day after. Finally, individuals are net buyers in Contagion days.

Keywords: Contagion, Foreign flows, Institutional investors, Individual investors, Emerging Markets

JEL Classification: G14, G15, D82

Suggested Citation

Agudelo, Diego A. and Múnera, Daimer, Are Foreigners the Vectors of Contagion? A Study of Six Emerging Markets (December 6, 2016). Center for Research in Economics and Finance (CIEF), Working Papers, No. 18-17, Available at SSRN: https://ssrn.com/abstract=3297129 or http://dx.doi.org/10.2139/ssrn.3297129

Diego A. Agudelo (Contact Author)

Universidad EAFIT - School of Economics and Finance - Center for Research in Economic & Finance (CIEF) ( email )

Carrera 49 No. 7 South - 50
Bogotá
Colombia

Universidad EAFIT ( email )

Carrera 49 N° 7 sur – 50
Bogotá, Antioquia 00000
Colombia

Daimer Múnera

Universidad EAFIT - School of Economics and Finance - Center for Research in Economic & Finance (CIEF) ( email )

Carrera 49 No. 7 South - 50
Bogotá
Colombia

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