Contagion Versus Interdependence: A Re-Examination of Asian-Crisis Stock Market Comovements

27 Pages Posted: 21 Jul 2003

See all articles by Stefanie Kleimeier

Stefanie Kleimeier

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

Thorsten Lehnert

University of Luxembourg

Willem F. C. Verschoor

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute

Date Written: February 2003

Abstract

This paper presents a framework based on correlation analysis to test for contagion during the episode of financial turmoil surrounding the Asian crisis. In particular, we calculate conditional and unconditional correlation coefficients for 15 countries. We advocate the use of synchronous instead of synchronized data to correctly measure stock market comovements. Considering the two different phases of the Asian crisis, reveals that synchronized data lead to an over-identification of contagion for the early Thailand crisis phase but an under-identification of contagion during the late Hong Kong crisis phase. When using synchronous data, we find little evidence of a significant change in the transmission mechanisms from Thailand to any of the other country in our sample as most financial shocks are thus transmitted through non-crisis-contingent channels. Contrary to the Thailand finding, we find evidence of contagion from the Hong Kong stock market to most of the other stock markets in our sample. This is in contrast with the findings of Forbes and Rigobon (2002) and suggests that most shocks are transmitted through crisis-contingent channels. Overall, our findings should caution researchers and practitioners alike when drawing conclusions based on synchronized data.

Suggested Citation

Kleimeier, Stefanie and Lehnert, Thorsten and Verschoor, Willem F. C., Contagion Versus Interdependence: A Re-Examination of Asian-Crisis Stock Market Comovements (February 2003). Available at SSRN: https://ssrn.com/abstract=424524 or http://dx.doi.org/10.2139/ssrn.424524

Stefanie Kleimeier (Contact Author)

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

Thorsten Lehnert

University of Luxembourg ( email )

6, rue Coudenhove-Kalergi
Luxembourg, L-1359
Luxembourg

Willem F. C. Verschoor

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands