How Do Crises Spread? Evidence from Accessible and Inaccessible Stock Indices





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    • Brian H. Boyer is at Brigham Young University, Tomomi Kumagai is at Wayne State University, and Kathy Yuan is at the Stephen M. Ross School of Business at the University of Michigan. Earlier versions of this paper circulated with the title “Are Investors Responsible for Stock Market Contagion?” The authors wish to thank Mark Aguiar, Christopher Couch, Campbell Harvey, Jerry Hausman, Guido Kuersteiner, Xiangming Li, Grant McQueen, Matt Pritsker, Ruy Ribeiro, Linda Tesar, Frank Warnock, and seminar participants at the University of Michigan, the University of Utah, the University of Wisconsin-Madison, Wayne State University, the UCLA Brainstorming Conference on International Capital Flows, and the American Finance Association Winter 2003 meetings in Washington, DC for helpful comments. We also thank Rob Stambaugh (the editor), an associate editor, and an anonymous referee for comments that substantially improved the original paper. Kumagai gratefully acknowledges the financial support from a University Research Grant from Wayne State University.


We provide empirical evidence that stock market crises are spread globally through asset holdings of international investors. By separating emerging market stocks into two categories, namely, those that are eligible for purchase by foreigners (accessible) and those that are not (inaccessible), we estimate and compare the degree to which accessible and inaccessible stock index returns co-move with crisis country index returns. Our results show greater co-movement during high volatility periods, especially for accessible stock index returns, suggesting that crises spread through the asset holdings of international investors rather than through changes in fundamentals.