Are Financial Crises Alike?

By Chrismin Tang, Mardi Dungey, Vance Martin, Brenda Gonzalez-Hermosillo, Renee Fry

January 1, 2010

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Format: Chicago

Chrismin Tang, Mardi Dungey, Vance Martin, Brenda Gonzalez-Hermosillo, and Renee Fry. Are Financial Crises Alike?, (USA: International Monetary Fund, 2010) accessed December 22, 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 investigates whether financial crises are alike by considering whether a single modeling framework can fit multiple distinct crises in which contagion effects link markets across national borders and asset classes. The crises considered are Russia and LTCM in the second half of 1998, Brazil in early 1999, dot-com in 2000, Argentina in 2001-2005, and the recent U.S. subprime mortgage and credit crisis in 2007. Using daily stock and bond returns on emerging and developed markets from 1998 to 2007, the empirical results show that financial crises are indeed alike, as all linkages are statistically important across all crises. However, the strength of these linkages does vary across crises. Contagion channels are widespread during the Russian/LTCM crisis, are less important during subsequent crises until the subprime crisis, where again the transmission of contagion becomes rampant.

Subject: Bonds, Financial crises, Financial institutions, Financial markets, Securities markets, Stock markets, Stocks

Keywords: Bonds, Contagion, Contagion channel, Crisis model, Crisis period, Dot-com crisis, Factor models, Financial crises, Global, LTCM crisis, Pressure approach, Securities markets, South America, Stock markets, Stocks, Subprime crisis, WP

Publication Details

Pages:

59
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/014
Stock No:

WPIEA2010014
ISBN:

9781451962086
ISSN:

1018-5941

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