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1 – 10 of over 4000The purpose of this paper is to review and organize the status of research already conducted on financial market contagion so as to provide easy access to future researchers…
Abstract
Purpose
The purpose of this paper is to review and organize the status of research already conducted on financial market contagion so as to provide easy access to future researchers. Additional objective of the study is to classify the available literature and provide a complete bibliography on the subject and analyze the findings of the studies considered for review.
Design/methodology/approach
A number of resources were looked at to review the past literature and out of hundreds of papers, 104 research papers form the sample for the present study. These 104 research papers are further classified on the basis of various variables so as to know the status of research done on the topic.
Findings
This paper classifies the past research done on financial market contagion and found that the research work in this field has increased significantly during recent times, particularly between 2011 and 2015. Apart from the above finding, many other findings were revealed by the studies used for this paper.
Practical implications
This paper presents the concise view of available literature. It helps the future researchers with the same research interest. This is the major implication of such literature review paper.
Originality/value
This paper provides collection, classification and comprehensive bibliography on financial market contagion. This paper is surely going to be of great value for academicians, practitioners and future researchers who study the existing research work as well as for conducting future research in the same subject.
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The purpose of this paper is to give an overview of variability of empirical results of several financial contagion studies, taking into account the role of financial markets…
Abstract
Purpose
The purpose of this paper is to give an overview of variability of empirical results of several financial contagion studies, taking into account the role of financial markets, data sets and the applied definitions and methods that may explain the variability of empirical evidence.
Design/methodology/approach
The authors used qualitative analysis of published research materials about previous financial crises and analyzed the variability of empirical results of around 75 studies of financial contagion, taking into account the particularities of financial markets, data sets and tests methods.
Findings
The results of the analysis show that empirical studies provide heterogeneous results depending on applied definitions and methods, as well as chosen crises, destination countries and financial indices. Summing up all the relevant empirical findings the results supporting the contagion hypothesis are in clear dominance, but taking into account differences in definitions and testing methodologies the research did not reveal clear results as to which evidence dominates or should dominate.
Research limitations/implications
The authors conclude that solely qualitative analysis of published research materials about previous financial crises does not give sufficient information to elaborate proper management measures to prevent serious consequences of financial crises. The authors propose that it is possible to obtain a more adequate picture of financial contagion by using a meta‐analysis, which the authors are planning to do in future studies.
Practical implications
The paper provides information about some reasons that explain the variability of the results that are presented in the empirical studies about financial contagion. This information can be used for elaborating policy proposals and regulations that can help alleviate possible negative consequences of financial contagion. The paper shows the way for future articles summarising financial contagion.
Originality/value
The study sums up previous findings on the field of financial contagion and shows the insufficiency of the traditional literature review to accomplish that task.
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The purpose of this paper is to obtain a comprehensive structure of past empirical studies on financial contagion which can provide the present growth and future scope of research…
Abstract
Purpose
The purpose of this paper is to obtain a comprehensive structure of past empirical studies on financial contagion which can provide the present growth and future scope of research work on the field of contagion analysis.
Design/methodology/approach
Present study identifies 151 empirical studies on financial contagion and summarises all the studies on the basis of tools and methodology used, year of the studies, origin of the studies, sample period and sample countries taken, studies undertaken on the basis of different crisis period and markets considered and finally sources of the studies.
Findings
The results of the analysis show that the empirical studies on contagion increased continuously over the past five years. Higher order test of contagion with more number of sample countries may provide more accurate picture on financial contagion.
Originality/value
This paper collects, classifies and summarises past empirical studies on financial contagion and provides valuable conclusion on present growth and future scope of studies on financial contagion. The information given in this paper can be helpful for future researchers and academicians on this particular field; the summary of the conclusion (from past reviews) may be helpful for the policy makers for asset allocation and risk management.
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Gatot Soepriyanto, Shinta Amalina Hazrati Havidz and Rangga Handika
This study provides a comprehensive analysis of the potential contagion of Bitcoin on financial markets and sheds light on the complex interplay between technological…
Abstract
Purpose
This study provides a comprehensive analysis of the potential contagion of Bitcoin on financial markets and sheds light on the complex interplay between technological advancements, accounting regulatory and financial market stability.
Design/methodology/approach
The study employs a multi-faceted approach to analyze the impact of BTC systemic risk, technological factors and regulatory variables on Asia–Pacific financial markets. Initially, a single-index model is used to estimate the systematic risk of BTC to financial markets. The study then uses ordinary least squares (OLS) to assess the potential impact of systemic risk, technological factors and regulatory variables on financial markets. To further control for time-varying factors common to all countries, a fixed effect (FE) panel data analysis is implemented. Additionally, a multinomial logistic regression model is utilized to evaluate the presence of contagion.
Findings
Results indicate that Bitcoin's systemic risk to the Asia–Pacific financial markets is relatively weak. Furthermore, technological advancements and international accounting standard adoption appear to indirectly stabilize these markets. The degree of contagion is also found to be stronger in foreign currencies (FX) than in stock index (INDEX) markets.
Research limitations/implications
This study has several limitations that should be considered when interpreting the study findings. First, the definition of financial contagion is not universally accepted, and the study results are based on the specific definition and methodology. Second, the matching of daily financial market and BTC data with annual technological and regulatory variable data may have limited the strength of the study findings. However, the authors’ use of both parametric and nonparametric methods provides insights that may inspire further research into cryptocurrency markets and financial contagions.
Practical implications
Based on the authors analysis, they suggest that financial market regulators prioritize the development and adoption of new technologies and international accounting standard practices, rather than focusing solely on the potential risks associated with cryptocurrencies. While a cryptocurrency crash could harm individual investors, it is unlikely to pose a significant threat to the overall financial system.
Originality/value
To the best of the authors knowledge, they have not found an asset pricing approach to assess a possible contagion. The authors have developed a new method to evaluate whether there is a contagion from BTC to financial markets. A simple but intuitive asset pricing method to evaluate a systematic risk from a factor is a single index model. The single index model has been extensively used in stock markets but has not been used to evaluate the systemic risk potentials of cryptocurrencies. The authors followed Morck et al. (2000) and Durnev et al. (2004) to assess whether there is a systemic risk from BTC to financial markets. If the BTC possesses a systematic risk, the explanatory power of the BTC index model should be high. Therefore, the first implied contribution is to re-evaluate the findings from Aslanidis et al. (2019), Dahir et al. (2019) and Handika et al. (2019), using a different method.
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Yuan Cao, Desheng Wu and Lei Li
Non-financial corporate debt is one of the important sources of systematic risk in the real economy. Assessing a measure of systematic risk in corporation debt is currently a key…
Abstract
Purpose
Non-financial corporate debt is one of the important sources of systematic risk in the real economy. Assessing a measure of systematic risk in corporation debt is currently a key challenge. In this regard, we propose a two-tier risk contagion networks model.
Design/methodology/approach
Assessing a measure of systematic risk in corporation debt is currently a key challenge. In this regard, we propose a two-tier risk contagion networks model based on four dimensions: concept definition, data structure, risk contagion network construction, and risk measurement indicators construction. We take the Jiangsu bond issuer guarantee network as a sample area.
Findings
Taking the Jiangsu bond issuer guarantee network as a sample area, we find that there is a strong correlation between the debts of non-financial corporation in China, and it is easy to become a potential regional systematic risk source. In addition, our empirical research also reveals that external risk exposure and node degree of network are two key indicators when identifying key risk-contagion enterprises.
Originality/value
The main contributions of this study are two-fold. First, this article proposes a two-tier risk contagion networks model to measure systematic risk in non-financial corporation. Second, this article describes the structure of the corporate risk contagion network.
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The purpose of this paper then, is to add to the existing literature on financial contagion. While a vast amount of the debate has been made using data from the late 1990s, this…
Abstract
Purpose
The purpose of this paper then, is to add to the existing literature on financial contagion. While a vast amount of the debate has been made using data from the late 1990s, this paper differentiates itself by analysing more current data, centred around the most recent global financial crisis, with specific focus on the stock markets of Hong Kong and Tokyo.
Design/methodology/approach
Employing Pearson and Spearman correlation measures, the dynamic relationship of the two markets is determined over tranquil and crisis periods, as specified by an Markov-Switching Bayesian Vector AutoRegression (MSBVAR) model.
Findings
The authors find evidence in support of the existence of financial contagion (defined as an increase in correlation during a crisis period) for all frequencies of data analysed. This contagion is greatest when examining lower-frequency data. Additionally, there is also weaker evidence in some data sub-samples to support “herding” behaviour, whereby higher market correlations persist, following a crisis period.
Research limitations/implications
The intention of this paper was not to analyse the cause or transmission mechanism of contagion between financial markets. Therefore future studies could extend the methodology used in this paper by including exogenous macroeconomic factors in the MSBVAR model.
Originality/value
The results of this paper serve to explain why the debate of the persistence and in fact existence of financial contagion remains alive. The authors have shown that the frequency of a time series dataset has a significant impact on the level of observed correlation and thus observation of financial contagion.
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Matteo Foglia, Alessandra Ortolano, Elisa Di Febo and Eliana Angelini
The purpose of this paper is to study the evolution of financial contagion between Eurozone banks, observing the credit default swaps (CDSs) market during the period 2009–2017.
Abstract
Purpose
The purpose of this paper is to study the evolution of financial contagion between Eurozone banks, observing the credit default swaps (CDSs) market during the period 2009–2017.
Design/methodology/approach
The authors use a dynamic spatial Durbin model that enables to explore the direct and indirect effects over the short and long run and the transmission channels of the contagion.
Findings
The results show how contagion emerges through physical and financial market links between banks. This finding implies that a bank can fail because people expect other related financial institutions to fail as well (self-fulfilling crisis). The study provides statistically significant evidence of the presence of credit risk spillovers in CDS markets. The findings show that equity market dynamics of “neighbouring” banks are important factors in risk transmission.
Originality/value
The research provides a new contribution to the analysis of EZ banking risk contagion, studying CDS spread determinants both under a temporal and spatial dimension. Considering the cross-dependence of credit spreads, the study allowed to verify the non-linearity between the probability of default of a debtor and the observed credit spreads (credit spread puzzle). The authors provide information on the transmission mechanism of contagion and, on the effects among the largest banks. In fact, through the study of short- and long-term impacts, direct and indirect, the paper classify banks of systemic importance according to their effect on the financial system.
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The current paper contributes to the vigorous debate about policies and regulations that would shield financial markets' participants from future events of the financial turmoil…
Abstract
Purpose
The current paper contributes to the vigorous debate about policies and regulations that would shield financial markets' participants from future events of the financial turmoil. In doing so, the paper aims to broaden the picture of the financial crisis contagion and set it against the background of contemporary European markets. The main purpose of this paper is to present novel aspects of the financial crisis contagion, hence clarifying the contagion theory that still remains confusing and ambiguous for both the academics and financial markets' practitioners.
Design/methodology/approach
The paper builds on a simulation model for the financial crisis contagion that is rooted in the qualitative query and backed by semi‐structured interviews with financial markets' participants who possess extensive knowledge about the functioning of European markets and their interconnectedness. With this in mind, the current paper adopts an international investor's perspective on implications that stem from the linkages between European financial markets, flawed regulations and the absence of cross‐border monitoring of the financial crisis contagion.
Findings
The findings constitute practical insights into the issues of the financial crisis contagion, hence providing useful advice on policies and regulations that could manage the cross‐market transmission of the financial turmoil and shield financial markets' participants from the episodes of financial crises in the future. The findings reported in this paper also present novel aspects of the contagion processes across the contemporary and systemically important financial markets in Europe.
Practical implications
The practical implications of the current paper gain in significance as the nascent financial crisis sparked off vigorous debate about the need for implementing regulations that would prevent financial markets' participants from the future episodes of global financial crises. At this point, the findings reported in the current paper might be of interest for policy makers and markets' authorities. In addition, the paper attempts to deliver findings that practitioners associated with the contemporary European financial markets would benefit from by understanding the linkages between these markets and ways the financial contagion spreads. Previously, little knowledge of ways financial crises spread across markets caused substantial losses that were incurred by investors.
Originality/value
The current paper addresses the issues of the financial crisis contagion that belong to the group of the most commonly referenced yet least understood notions in finance. Furthermore, the paper focuses on addressing the recently exposed fragility of financial markets' surveillance and regulations. In doing so, the paper employs a pioneering approach to a simulation of the financial crisis contagion by embarking on a qualitative query rather than empirical data. Henceforth, the limitations of the empirical simulations – experienced in the past studies devoted to investigation of the financial crisis contagion – were ameliorated and the findings presented in the paper became of practical use for the markets' practitioners and policymakers.
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Pablo Estrada and Leonardo Sánchez-Aragón
Financial contagion refers to the propagation of shocks that can generate widespread failures. The authors apply a financial contagion model proposed by Elliott, Golub, and…
Abstract
Financial contagion refers to the propagation of shocks that can generate widespread failures. The authors apply a financial contagion model proposed by Elliott, Golub, and Jackson (2014) to a cross-shareholding network of firms in Ecuador. The authors use a novel dataset to study the potential channels for contagion. Although diversification is not high, results reveal enough conditions for a contagion event to occur. However, the low level of integration attenuates the effects of shocks. The authors run simulations affecting a particular firm at the time, and find that two firms coming from the finance and trade industry cause the highest contagion. In addition, when an entire industry receives a shock, trade and manufacturing industries contagion more companies than the rest. Finally, the model can assist policymakers to monitor the market and evaluate the fragility of the network in different scenarios.
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The purpose of this paper is to analyze the network path and internal mechanism of risks’ cross-contagion between shadow banks and design strategies for preventing risk infection…
Abstract
Purpose
The purpose of this paper is to analyze the network path and internal mechanism of risks’ cross-contagion between shadow banks and design strategies for preventing risk infection between shadow banks.
Design/methodology/approach
Using the complex network theory, analyze the mechanism of risks’ cross-contagion between shadow banks from the credit network, business relationship network (BRN) and social network (SN); the cross-contagion mechanism using the structural equation model on the basis of China’s shadow banks is tested; based on the three risk infection paths, the prevention and control strategies for risk infection using the mathematical models of epidemic diseases are designed.
Findings
There are three network risk contagion paths between shadow banks. One, the credit network, risks are infected crossly mainly through debt and equity relationships; two, the BRN, risks are infected crossly mainly through business network and macro policy transmission; three, investor SN, risks are infected crossly mainly through individual SN and fractal relationships. The following three strategies for preventing risk’s cross-contagion between shadow banks: one, the in advance preventing strategy is more effective than the ex post control strategy; two, increasing the risk management coefficient; three, reducing the number of risk-infected submarkets.
Originality/value
The research of this study, especially the strategies for preventing the risks’ cross-contagion, could provide theoretical and practical guidance for regulatory authorities in formulating risk supervision measures.
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