TY  - JOUR
AU  - Bae,Kee-Hong
AU  - Karolyi,G. Andrew
AU  - Stulz,Rene M.
TI  - A New Approach to Measuring Financial Contagion
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7913
PY  - 2000
Y2  - September 2000
UR  - http://www.nber.org/papers/w7913
L1  - http://www.nber.org/papers/w7913.pdf
N1  - Author contact info:
Kee-Hong Bae

Rene M. Stulz
The Ohio State University
Fisher College of Business
806A Fisher Hall
Columbus, OH 43210-1144
Tel: 614/292-1970
Fax: 614/292-2359
E-Mail: stulz_1@cob.osu.edu
AB  - This paper proposes a new approach to evaluate contagion in financial markets. Our measure of contagion captures the co-incidence of extreme return shocks across countries within a region and across regions that cannot be explained by linear propagation models of shocks. We characterize the extent of contagion, its economic significance, and its determinants using a multinomial logistic regression model. Applying our approach to daily returns of emerging markets during the 1990s, we find that contagion, when measured by the co-incidence within and across regions of extreme return shocks, is predictable and depends on regional interest rates, exchange rate changes, and conditional stock return volatility. Evidence that contagion is stronger for extreme negative returns than for extreme positive returns is mixed.
ER  -