Financial Contagion and Investor "Learning": An Empirical Investigation

December 1, 2002

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Format: Chicago

Ritu Basu. Financial Contagion and Investor "Learning": An Empirical Investigation, (USA: International Monetary Fund, 2002) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

There have been several episodes of financial market "contagion" in the 1990s. Is contagion driven by herd behavior? Does it reflect fundamental economic linkages between countries? Or are episodes of contagion driven by investor learning and risk reassessment about a select group of countries? We pursue these questions by studying the persistence in the spillover of shocks following the bond market developments in Hong Kong SAR in 1997. Our results suggest that this contagion, at least for a few countries, was a consequence of adverse sentiment shifts arising from investor learning and was not merely driven by changes in fundamentals.

Subject: Emerging and frontier financial markets, Financial markets, Financial services, Foreign exchange, Monetary base, Money, Real exchange rates, Securities markets, Yield curve

Keywords: Africa, Bond market, Contagion, Contagion case, Cross-market liquidity risk spillover, Cross-market shock transmission, Emerging and frontier financial markets, Emerging market, Global, Global bond market turmoil post, Herding, Investor, Learning, Market, Market insolvency, Market response, Monetary base, Real exchange rates, SAR., Securities markets, Sunspots, Trader behavior, WP, Yield curve

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2002/218
Stock No:

WPIEA2182002
ISBN:

9781451875157
ISSN:

1018-5941

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