Financial Interdependence or Contagion? Evidence from a Meta-analysis

During the last two decades, the phenomenon of financial contagion has been investigated in numerous pieces of research. In spite of its severe implications for the stability of domestic financial systems as well as potential diversification benefits of international portfolio investment, there has...

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Bibliographic Details
Published inJournal of economic cooperation & development Vol. 40; no. 1; pp. 79 - 102
Main Authors Chao, Zhang Heng, Mohamad, Azhar, Hamid, Zarinah
Format Journal Article
LanguageEnglish
Published Ankara Statistical Economic & Social Research & Training Centre for Islamic Countries 2019
Subjects
Analysis
Contagion
Diversification
Economic crisis
Economic models
Equilibrium
Financial market
Financial systems
Interdependence
International finance
Investigations
Liberalization
Lines of credit
Meta-analysis
Policy making
Portfolio investments
Portfolio management
Securities markets
Statistical significance
Stock exchanges
Variability
Hong Kong China
New York
United States > US
China
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Summary:During the last two decades, the phenomenon of financial contagion has been investigated in numerous pieces of research. In spite of its severe implications for the stability of domestic financial systems as well as potential diversification benefits of international portfolio investment, there has yet to be universally agreed conclusion on the relevance of financial contagion. Thus, our current study has been designed to apply the meta-analysis approach to investigate the statistical significance of financial contagion based on past empirical contagion studies. Our meta-analysis concludes that financial contagion is a significant phenomenon. As implications, policy makers should establish contingent credit lines to ensure the liquidity of financial market during the turbulence time, and portfolio investors should diversify away from the potentially contagious markets. It is suggested that future contagion-based meta-analysis may include contagion studies with different methodologies, as well as meta-regression analysis to provide more insights on the sources of variability in the contagion studies.
ISSN:1308-7800