Claude Erb
First Chicago NBD Investment Management Co., Chicago, IL
Campbell Harvey
Duke University, Durham, NC 27708
Tadas Viskanta
First Chicago NBD Investment Management Co., Chicago, IL
ABSTRACT
We examine the phenomenon known as contagion where regional markets respond to information in one country. Given that emerging market returns characteristics are much different than developed market returns, we argue that changing correlations are more likely in these markets. We examine two regional crises: Lation America in lae 1994 and Aisa in late 1997. We argue that these markets' intra-regional correlation have been growing through time. This potentially caused observers to underestimate the crisis correlations if they were estimating correclations from historical data. We examine the time-path of country correlations and relate the regional crises to a variety of county risk measures.