The Financial and Economic Crises

The Financial and Economic Crises

An International Perspective

Edited by Benton E. Gup

The 2007 financial and economic crisis that began in the United States and quickly spread around the world differed from earlier crises in a number of significant ways. This book examines the causes of these events in the US, and their impacts on North America, Europe, Asia and Australia.

Chapter 2: Spillover Effects from the US Financial Crises: Some Time-Series Evidence from National Stock Returns

Apanard Penny Angkinand, James R. Barth and Hyeongwoo Kim

Subjects: business and management, corporate governance, economics and finance, corporate governance, financial economics and regulation, international economics

Extract

2. Spillover effects from the US financial crisis: some time-series evidence from national stock returns Apanard Penny Angkinand, James R. Barth and Hyeongwoo Kim* 1 INTRODUCTION The collapse of US housing prices and the ensuing mortgage market meltdown that began during the summer of 2007 triggered a global financial crisis. Unlike the financial crises that struck Southeast Asian countries in the summer of 1997, the more recent crisis initially started in one of the most advanced countries in the world, namely the United States. As a result of this crisis, there is widespread interest in understanding the extent to which the increasing interdependencies in trade and financial linkages among countries in recent years contributed to spillover effects from the United States to other countries. There is ample factual evidence that national markets have become more interconnected with one another with respect to cross-border trade and capital flows during the past few decades (for example, see Forbes and Chinn, 2004). It seems reasonable to assume that these cross-border market linkages have increased the likelihood of shocks in an economically and financially important country to be transmitted internationally. This would particularly be the case in a country like the United States. One would expect sizable spillovers from the recent and severe US financial crisis to other countries given the overall importance of the US for the world’s economy and financial markets. There is, however, as yet no or limited empirical evidence supporting such a contention in the current crisis. But there are...

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