Contagion in International Bond Markets during the Russian and LTCM Crises

Vance L Martin, Brenda Gonzalez-Hermosillo, Renee Fry, Mardi Dungey

    Research output: Contribution to journalArticle

    Abstract

    The Russian bond default in August 1998 and the long-term capital management (LTCM) recapitalization announcement in the following month represent an unusual period of volatility in international bond markets with bond spreads increasing dramatically across the globe. Using a latent factor model and a new data set spanning bond markets across Asia, Europe and the Americas, we quantify the contribution of contagion to the spread of these two crises. The maximum amount of contagion experienced by any of the countries investigated is about 17% of total volatility in bond spreads, with the main effects due to the Russian crisis. The results also show that both emerging and developed markets experienced contagion during the period.
    Original languageEnglish
    Pages (from-to)1-27
    JournalJournal of Financial Stability
    Volume2
    Issue number1
    DOIs
    Publication statusPublished - 2006

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