Risk Sharing and Financial Contagion in Asia: An Asset Price Perspective

October 1, 2011

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Format: Chicago

Phurichai Rungcharoenkitkul. Risk Sharing and Financial Contagion in Asia: An Asset Price Perspective, (USA: International Monetary Fund, 2011) accessed November 21, 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

This paper assesses financial integration in Asia in terms of risk-sharing benefit versus financial-contagion cost. We construct a new measure of risk sharing based on a term structure model, which allows identification of realized stochastic discount factors. Risk sharing is low in Asia, and varies across time and countries, whereas contagion risks are more significant intra-regionally, and relatively stable over the past decade. An overall tradeoff exists between risk sharing and contagion, but the terms of tradeoffs vary across countries, depending on relative economic fluctuations and inflation differentials. Asia, therefore, can potentially enhance risk sharing without raising contagion risk.

Subject: Asset prices, Financial contagion, Financial integration, Financial markets, Financial sector development, Financial sector policy and analysis, Prices, Stock markets

Keywords: Affine term structure model, Asia and Pacific, Asset prices, Benefit perspective, Contagion, Contagion risk, Financial contagion, Financial crisis, Financial integration, Financial sector development, Global, Market rule, Risk sharing, Risks low, Spillover risk, Standard deviation, Stock markets, Time series, WP

Publication Details

Pages:

41
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/242
Stock No:

WPIEA2011242
ISBN:

9781463922634
ISSN:

1018-5941

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