Financial contagion in emerging markets the fact that there were several similarities between the financial crises in mexico 1995 and asia 1997 makes it interesting to examine whether a model that explained the mexican crisis also can be applied on the asian crisis. Thus, this thesis aim is to do a quantitative study of nineteen emerging market economies with a model consisting of three explanatory variables: appreciated real exchange rate, weak banking system and scarce foreign exchange reserves. To the best of my knowledge, a follow up study of this model has never been made before. Contribution: if the model does a good work explaining also the asian crisis, it may be used by the market e.g. International investors and currency traders as an early warning indicator of future contagious crises in emerging markets.

However, by running regressions i found that the r2values are low adjusted r2are negative and neither of the null hypotheses are significant at ten percents level. The conclusion is hence that the model does a poor job explaining what happened in asia and that further research is needed in order to find a model which can explain patterns when financial crises in emerging markets becomes contagious due to creditors withdrawal of capital. Prior to the mexican crisis in 1995 the word contagion had not reached out to the majority of politicians and economists and did therefore only constitute a small part of the economic literature.

That changed however, when the asian crisis 1997 and russian crisis 1998 showed the very same patterns. Hence, over a couple of years three major financial crises put large parts of the developing world under severe financial distress. The common characteristic between these three rises was the fact that investors decided to withdraw capital causing the countries to experience balance of payment crises and in addition, attacked currencies. This phenomenon was named contagion one of the first explanations given subsequent to the mexican crisis discussed whether current account deficits could be the main driver. That could not be applied for mexico however, since they had not suffered from neglected financials in the past. Other solutions to the phenomena thus started to arise, implying that the initial literature became quite sprawling. Nowadays economists are more accustomed to these kinds of crises and the literature has thus also become fine tuned as a distinction between pure contagion and fundamental based contagion is agreed on.

The rationale behind the selection of the asian crisis as follow up study depends mainly on the similarities that prevailed between the south american mexican crisis and the asian crisis but also on my owninterest in learning more about asian history. The theoretical frame of reference contains mostly of articles written by internationally wellknown economists which are commonly referred to when discussing contagion. I have not been critical towards the actual conclusions made in the different models and studies which i am aware of. Whenever i have found a contradiction to any of the theories, i have presented the opponents view as well. The rest of this thesis is outlined as follows next section contains the theory part whichbegins with a discussion regarding the definition of contagion followed by a number of contagion theories with a distinction between fundamental based contagion and pure contagion.

The asian crisis is discussed in section three with special emphasis on the common characteristics among the five worst affected countries and similarities between the mexican crisis and the asian crisis. A caption on the relationship between a governments foreign exchange reserves, capital withdrawals and a currency rsquo s devaluation is addressed as well. In section four i conduct my own study based on the model used by sachs et al 1996 with a discussion regarding the obtained results as closure in part five. Author: louise valentin, stockholm school of economics, department of economics source: this unprecedented rise of china and india to global economic superpowers has defied all expectation and shows no signs of waning. Even in the tough economic condition of the past few years both countries have registered growth rates which are close to the highest in the world. But has this come at the cost of market efficiency? this report aims to test empirical evidence and run other tests to find if both the markets are weak form efficient. Tests are conducted over a period of 4 years, covering the global recession, to see if market efficiency has been affected in any way.

The empirical analysis is done by performing various unit root tests and the auto correlation tests. Event study is conducted on the two largest oil and gas companies in india and china, by studying the market reaction to the announcement of dividends during the sample period. This research aims to study the effect of these holidays on the returns to investors. Efficient markets will help attract domestic investments and significant foreign investments.

Com 150 Final Project Expository Essay

The next decade will be a vital phase for both countries as they vie for natural resources and investments. An efficient and mature market might be an indicator of which of the two neighbours will emerge as a true global superpower at the turn of this decade. According to the efficient market hypothesis proposed by eugene fama in 1970, an efficient market is one in which the true value of an investment is reflected in its market price. The market price is an aggregate of all the historical and present information available. This research aims to comparatively test the market efficiency in the two emerging markets of india and china, with focus on finding the effects of the global recession of 2008 2009 on it. The research will also explore the possibility of extrapolating the findings to other emerging economies. A brief study of the origins and development of the two markets after the colonial rule and economic reforms in the mid 1990, which resulted in the rapid growth of the two economies, will be undertaken.

Both india and china are heavily influenced by their rich cultures and religion plays an important role, it is thus important to test if they have any influence on returns and efficiency in the markets. This will be done by conducting holiday effect tests during the periods of dusshera and diwali in india and chinese new year and national day in china. Another important method for testing market efficiency is by conducting event studies.

The market reaction to announcement of dividends by companies will be studies to comment upon the informational efficiency and overall market efficiency. According to the efficient market hypothesis, which is based on the theory first forwarded by samuelson 1965 and later formally reviewed and presented by fama 1970 , no one can consistently make gains in excess of the average market returns. It further states that at any point in time, the security prices fully reflect all the information available and no information or analysis can be expected outperform benchmark market returns. There are three forms of efficiency according to the hypothesis: weak form efficiency: prices reflect all past publicly available information and past market data. Semi strong form efficiency: prices reflect all past publicly available information and past market data and also instantly change to reflect new information. Strong form efficiency: prices reflect all past and new information and also reflect any hidden insider information. In case of semi strong efficiency, in addition to technical analysis, fundamentals analysis is also of no use and in strong form even insider information does not result in extraordinary gains.