Working Paper: NBER ID: w18028
Authors: Joshua Aizenman; Yothin Jinjarak; Minsoo Lee; Donghyun Park
Abstract: The global crisis highlights the continued vulnerability of developing countries to shocks from advanced economies. Just a few years after the global crisis, the eurozone sovereign debt crisis has emerged as the single biggest threat to the global outlook. In this paper, we apply the event study methodology to gauge the scope for financial contagion from the EU to developing countries. More specifically, we estimate the responsiveness of equity and bond markets in developing countries to global crisis news and euro crisis news. Overall, we find that whereas global crisis news had a consistently negative effect on returns of equity and bond markets in developing countries, the effect of euro crisis news was more mixed and limited.
Keywords: Developing Countries; Euro Crisis; Financial Contagion; Event Study; Equity Markets; Bond Markets
JEL Codes: F30; F32; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Global crisis news (G01) | Decreased returns of equity and bond markets in developing countries (O16) |
| Euro crisis news (G01) | Negative market performance in developing countries (F63) |
| Global crisis news (G01) | Cumulative normal return across equity and bond markets in developing countries dropped (G15) |
| Eurozone news (F36) | Limited effect on market returns in developing countries (F69) |