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IMF Staff Papers Logo    June 1999
Volume 46, Number 2
 
Financial Market Contagion in the Asian Crisis
By Taimur Baig and Ilan Goldfajn

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Abstract: This paper tests for evidence of contagion between the financial markets of Thailand, Malaysia, Indonesia, Korea, and the Philippines. We find that correlations in currency and sovereign spreads increase significantly during the crisis period, whereas the equity market correlations offer mixed evidence. We construct a set of dummy variables using daily news to capture the impact of own-country and cross-border news on the markets. We show that after controlling for own-country news and other fundamentals, there is evidence of cross-border contagion in the currency and equity markets. [JEL F30, F40, G15]

© 1999 International Monetary Fund