Financial crises and contagion effects in emerging economies: characterization and measurement.

Summary The 1990s were marked by numerous financial and monetary crises in emerging countries. These crises tended to be chronologically and sometimes geographically grouped, i.e. to spread between countries, regardless of the macroeconomic fundamentals of the countries concerned. The South-East Asian crisis of 1997-1998 is the most marked illustration of what is known in the economic literature as "contagion". This notion has given rise to much discussion and research. We are therefore interested in modeling contagion in six Asian financial markets. We want to test whether the crisis that started in Thailand in July 1997 has been transmitted to other countries by way of contagion, through composite indices and trading volumes. To do so, we first construct a crisis indicator using the volumes traded on the market and the composite indices. Our results specify a threshold beyond which a crisis is imminent in these countries. We then use the transfer function model to show the existence of a dependency structure between the markets before and during the crisis. Using a test, we compare whether the dependency structure between two markets changes during the crisis, compared to the stable period.