The Asian Financial Crisis: Causes, Cures, and Systemic Implications

Benson, John; Goldstein, Morris; Noland, Marcus; Liu, Ligang; Robinson, Sherman; Wang, Zhi; Posen, Adam S.

doi:10.2307/3552620

Cited by 4 publications

(4 citation statements)

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“…Wake-up call contagion occurs when a crisis in one country leads investors to reevaluate the risk of default in other countries, even if those countries have no direct exposure to the crisis. The hypothesis of the wake-up call contagion was first proposed by Goldstein (1998) to explain contagion during the Asian financial crisis of the late 1990s. The author argued that a crisis in one region (region 1) can act as a wake-up call to investors in another region (region 2), compelling them to re-evaluate the regional fundamentals and obtain information about the macroeconomic shock.…”

Section: Different Perspectives On Financial Contagionmentioning

confidence: 99%

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: Different Perspectives On Financial Contagionmentioning

confidence: 99%

Financial Contagion between Eurozone and BRICS Stock Markets under Multiscale Scrutiny

Niyitegeka,

Habiyaremye

2024

Preprint

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“…For example, uninformed and less-informed investors may have difficulty extracting information from the signal of falling prices and may instead choose to follow the strategies of better-informed investors, resulting in excess co-movements across markets. This often occurs when a crisis in one country serves as a "wake-up call" to international investors as it forces them to reconsider risks in other countries (Goldstein, 1998;Pasquariello, 2007;Yuan, 2005). The degree of (non)anticipation of a crisis by investors is crucial for the occurrence of contagion because of the allocation of investors' attention (Mondria & Quintana-Domeque, 2013).…”

Section: Stock Market Comovementmentioning

confidence: 99%

The mediating effect of trust on financial development and stock market comovement in BRICS economies

Matlhaku

2024

brics-econ

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This study examines the effects of financial development on the stock market comovement of Brazil, Russia, India, China and South Africa (BRICS) on the one hand and the US Dow Jones on the other. Its main goal is to find out if trust has a mediating effect on financial development using data from the World Bank and the World Value Survey (WVS). Panel data analysis along with ARDL methods helped the authors obtain robust results. It was found that financial development plays a significant role in determining stock market comovement among the countries in question and that trust also has a moderating impact. The analysis was extended to the institutional and market factors of financial development. The paper introduces trust as a mediating variable that positively affects financial development, which in turn promotes stock market integration and comovement. Its results imply that investors should consider financial development and trust levels of a country when considering portfolio allocation for global diversification purposes, especially in emerging markets. Countries with insufficient trust levels, like Brazil, could benefit from improving their trust score through enhancing financial development and stability.

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“…12 "Wake-up call" is one channel of financial contagion documented in the previous literature. Crisis initially restricted to one market can provide new information and wake-up investors to reassess the vulnerability of other markets (Goldstein, 1998). 13 Cosset and Suret (1995) explore policy risks in a cross-country setting of 36 countries from 1982 to 1991, whereas China is not in the sample due to lack of development in the stock market.…”

Section: Literature and Hypothesis Developmentmentioning

confidence: 99%