NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Developing countries' financial vulnerability to the euro crisis: An event study of equity and bond markets

Joshua Aizenman, Yothin Jinjarak, Minsoo Lee, Donghyun Park

NBER Working Paper No. 18028
Issued in May 2012
NBER Program(s):   IFM

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.

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Document Object Identifier (DOI): 10.3386/w18028

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