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Title: Unveiling investor-induced channels of financial contagion in the 2008 financial crisis using copulas
Authors: Horta, P.
Lagoa, S.
Martins, L.
Keywords: Financial contagion
Contagion channels
2008 financial crisis
Stock markets
Copula models
Issue Date: 2016
Publisher: Routledge/Taylor and Francis
Abstract: Understanding how financial crises spread is important for policy-makers and regulators in order to take adequate measures to prevent or contain the spread of these crises. This paper will test whether there was contagion of the subprime financial crisis to the European stock markets of the NYSE Euronext group (Belgium, France, the Netherlands and Portugal) and, if evidence of contagion is found, it will determine the investor-induced channels through which the crisis propagated. We will use copula models for this purpose. After assessing whether there is evidence of financial contagion in the stock markets, we will examine whether the ‘wealth constraints’ transmission mechanism prevails over the ‘portfolio rebalancing’ channel. An additional test looks at the interaction between stock and bond markets during the crisis and allows us to determine if the transmission occurred due to the ‘cross market rebalancing’ channel or the ‘flying to quality’ phenomenon. The tests suggest that (i) financial contagion is present in all analyzed stock markets, (ii) a ‘portfolio rebalancing’ channel is the most important crisis transmission mechanism, (iii) and the ‘flight-to-quality’ phenomenon is also present in all analyzed stock markets.
Peer reviewed: yes
DOI: 10.1080/14697688.2015.1033447
ISSN: 1469-7688
Accession number: WOS:000371695500002
Appears in Collections:BRU-RI - Artigos em revistas científicas internacionais com arbitragem científica
DINÂMIA'CET-RI - Artigo em revista científica internacional com arbitragem científica

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