A Wake-Up Call Theory of Contagion

Ahnert, Toni; Bertsch, Christoph

doi:10.1093/rof/rfac025

Cited by 7 publications

(5 citation statements)

References 58 publications

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“…"Wake-up call contagion" is a channel of contagion that is most relevant for contagion across countries and financial institutions and markets. It occurs when a crisis in one country or financial institution leads investors to reevaluate the risk of a crisis in other countries or financial institutions, even if those countries or financial institutions have no direct exposure to the crisis (Ahnert and Bertsch, 2022). The above-mentioned argument places the analysis caused by COVID-19 1 beyond the purview of this study.…”

Section: Introductionmentioning

confidence: 89%

Financial Contagion between Eurozone and BRICS Stock Markets under Multiscale Scrutiny

Niyitegeka,

Habiyaremye

2024

Preprint

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We use the Maximum Overlap Discrete Wavelet Transform (MODWT) to analyse the interconnectedness between the stock markets of continental Europe and the BRICS countries. More specifically, we examine the presence of financial contagion in the stock markets of Brazil, Russia, India, China, and South Africa subsequent to the EuroZone Sovereign Debt Crisis (EZDC). We find evidence of co-movement and volatility spillover at short time scales between the Eurozone equity market and the equity markets in South Africa and Russia, with the Eurozone stock market leading the BRICS markets. The presence of co-movement in short time scales is indicative of the presence of financial contagion. No financial contagion is observed in the Brazilian, Chinese, and Indian stock markets during the European sovereign debt crisis. The absence of financial contagion observed in these three BRICS countries during the European sovereign debt crisis suggests that policymakers in these countries should prioritise addressing idiosyncratic shock channels.

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Section: Introductionmentioning

confidence: 89%

Financial Contagion between Eurozone and BRICS Stock Markets under Multiscale Scrutiny

Niyitegeka,

Habiyaremye

2024

Preprint

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“…, 2013; Beirne and Fratzscher, 2013; Bekaert et al. , 2014; Ahnert and Bertsch, 2022). This indicates the wake-up call contagion measured by the coefficients θ .…”

Section: Methodology: a Spatial Econometrics Approachmentioning

confidence: 99%

“…We do not consider it a contagion. Thirdly, SovCDSs of one country may raise when a negative event initially restricted to a single country induces investors to reassess the vulnerability of other countries with the same bad fundamentals (Giordano et al, 2013;Beirne and Fratzscher, 2013;Bekaert et al, 2014;Ahnert and Bertsch, 2022). This indicates the wake-up call contagion measured by the coefficients θ.…”

Section: Methodology: a Spatial Econometrics Approachmentioning

confidence: 99%

“…The channel of contagion is just a re-valuation of risk by investors, and the affected countries require not to be interconnected through trade or banking linkages. Evidence for Wake-up-call contagion is provided by Masson (1998Masson ( , 1999a, Andemetten et al (2011), Giordano et al (2013), Beirne and Fratzscher (2013), Bekaert et al (2014), Ahnert and Bertsch (2022).…”

Section: Literature Reviewmentioning

confidence: 99%

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Contagion in the Euro area sovereign CDS market: a spatial approach

Ben Abdallah,

Dabbou,

Gallali

2023

JRF

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PurposeThis paper explores whether the Euro-area sovereign credit default swap market is prone to contagion effects. It investigates whether the sharp increase in sovereign CDS spread of a given country is due to a deterioration of the macroeconomic variables or some form of contagion.Design/methodology/approachFor this purpose, the authors use an innovative approach, i.e. spatial econometrics. Although modeling spatial dependence is an attractive challenge, its application in the field of finance remains limited.FindingsThe empirical findings show strong evidence of spatial dependence highlighting the presence of pure contagion. Furthermore, evidence of wake-up call contagion-increased sensitivity of investors to fundamentals of neighboring countries and shift contagion-increased sensitivity to common factors are well recorded.Originality/valueThis study aims to study a crucial financial issue that gained increased research interest, i.e. financial contagion. A methodological contribution is made by extending the standard spatial Durbin model (SDM) to analyze and differentiate between several forms of contagion. The results can be used to understand how shocks are spreading through countries.

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“…Following a similar approach, Cont and Schaanning (2019) analyse the vulnerability of the European banking system to indirect contagion as a consequence of forced portfolio deleveraging. For a more general overview on different aspects of financial contagion discussed in the literature, which are not directly relevant for this study, see Ahnert and Bertsch (2022) 1 . Chaderina, Mürmann, and Scheuch (2018) argue that institutional investors tend to sell liquid assets first causing trades to be focused on a specific selection of assets, which might lead to a more pronounced price drop for liquid assets than for illiquid ones.…”

Section: Introductionmentioning

confidence: 99%