OECD Economics Department Working Papers

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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

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International Capital Mobility and Financial Fragility - Part 6. Are all Forms of Financial Integration Equally Risky in Times of Financial Turmoil?

Asset Price Contagion During the Global Financial Crisis You or your institution have access to this content

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Rudiger Ahrend, Antoine Goujard1
Author Affiliations
  • 1: OECD, France

20 June 2012
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Using the 2008-09 global financial crisis, this paper examines the role of different forms of international financial integration for asset price contagion in crisis times. Defining contagion as the transmission of financial market movements beyond the co-movements that would occur in “tranquil” times, the paper looks into the presence of contagion in the period of turmoil prior to the fall of Lehman Brothers, in the main crisis period following the Lehman collapse, and in the ensuing late stages of the crisis. The analysis uses bilateral financial and trade linkages and daily data on equity and bond prices for a sample of 46 countries between 2002 and 2011. Bilateral debt integration and common bank lenders are found to have transmitted financial turmoil through equity and bond markets at the height of the crisis. During this period, real trade linkages also increased equity price co-movements. By contrast, no robust evidence is found that equity or FDI integration increased asset price co-movements during the crisis.
foreign direct investments, external debt, financial spillovers, asset price co-movements, trade spillovers
JEL Classification:
  • E44: Macroeconomics and Monetary Economics / Money and Interest Rates / Financial Markets and the Macroeconomy
  • F36: International Economics / International Finance / Financial Aspects of Economic Integration
  • F44: International Economics / Macroeconomic Aspects of International Trade and Finance / International Business Cycles
  • G15: Financial Economics / General Financial Markets / International Financial Markets
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