BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 6/2001:
International investors, contagion and the Russian crisis
Alexei Medvedev ()
Abstract: The paper provides detailed empirical assessment of the
role of non-residents in the development of Rus-sian financial crisis in
1997-1998. It is established that non-residents behaved differently during
the pe-riod of crisis and significantly contributed to the collapse of the
state bonds market. In particular, we found that sharp downturn in May 1998
was caused by contagious selling on the part of foreign investors following
Indonesian crisis. At the same time, we question the common view that
non-residents were lar-gely responsible for market pressures at the initial
stage of the crisis. In this paper we go a little beyond the discussion of
Russian crisis and propose alternative explanation of contagious outflow of
foreign ca-pital. We combine CAPM and findings of Forbes and Rigobon (2001)
to show that international portfolio investors are more sensitive to pure
external shocks and less sensitive to pure domestic ones.
Keywords: financial markets; financial crises; Russia; contagion; (follow links to similar papers)
42 pages, July 25, 2001
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