THE PHENOMENON OF CONTAGIOUS FINANCIAL BUBBLES
https://doi.org/10.26794/2587-5671-2017-21-6-79-87
Abstract
Topic. The author examines the phenomenon of contagious financial bubble — a situation in which a financial bubble arises on the stock market of one country as a result of events on the stock market of another country. Globalization of financial markets has created the conditions for the migration of financial bubbles from one market to another. As a result, to the classical causes of investors’ euphoria, such as economic growth and credit expansion, it is necessary to add the activity of foreign investors.
Purpose. The purpose of this paper is a determination of measures to counter infectious bubbles.
Methodology. Based on comparative analysis of theoretical and empirical papers we identified the infectious mechanisms of formation of financial bubbles. We conducted statistical analysis of financial bubbles in the US and China. The analysis considered the dollar index family MSCI: they are calculated by one source, based on a common methodology that allows avoiding distortions due to the different construction principles of indices. Also, we conducted a detailed study of the phenomenon of co-integration stock markets.
Results. The article highlights the basic mechanisms of contagious financial bubbles. Based on the comparison of financial bubbles in the US and China we showed that infectious bubbles are formed under the influence of the situation on the financial markets of developed countries. Further, we determined the conditions of infection of financial bubbles. In accordance with the results of the analysis of the causes and mechanisms of occurrence of contagious bubbles, we discussed possible measures of control for the prevention of financial bubbles. Summarizing the results obtained, we identified priority measures to counter infectious bubbles.
Conclusions. Efforts to curb financial bubbles (including through measures of monetary policy) are seen as ineffective. It is preferable to take measures to contain the negative consequences of the collapse of prices in consequence of the collapse of financial bubbles.
About the Author
E. B. Netunaev
Lomonosov Moscow State University
Russian Federation
Russian Federation
Eugene B. Netunaev — post-graduate student of economic faculty.
Moscow
References
1. Kindleberger C.P., Aliber R.Z.Manias, panics, and crashes: a history of financial crises. Palgrave Macmillan, 2011. 366 p.
2. Lux T. Herd behaviour, bubbles and crashes. The economic journal, 1995, pp. 881–896.
3. Anderson K., Brooks C., Katsaris A. Speculative bubbles in the S&P 500: Was the tech bubble confined to the tech sector? Journal of Empirical Finance, 2010, vol. 17, no. 3, pp. 345–361.
4. Lukasevich I. Ya., Fedorova E.A. Financial integration of stock markets in developing countries. Finansy i kredit = Finances and credit, 2012, no. 10 (490), pp. 56–65. (In Russ.).
5. Shiller R.J.Irrational Exuberance. N.Y.: Broadway Books, 2005. 334 p.
6. Allen F., Gale D. Financial contagion. Journal of political economy, 2000, vol. 108, no. 1, pp. 1–33.
7. Dornbusch R., Park Y.C., Claessens S.Contagion: understanding how it spreads. The World Bank Research Observer, 2000, vol. 15, no. 2, pp. 177–197.
8. Nneji O., Brooks C., Ward C.W.R. Speculative bubble spillovers across regional housing markets. Land Economics, 2015, vol. 91, no. 3, pp. 516–535.
9. Chien M.S. et al. Dynamic Asian stock market convergence: Evidence from dynamic co-integration analysis among China and ASEAN‑5. Economic Modelling, 2015, vol. 51, pp. 84–98.
10. Horvath R., Petrovski D. International stock market integration: Central and South Eastern Europe compared. Economic Systems, 2013, vol. 37, no. 1, pp. 81–91.
11. Fedorova E.A. The impact of the 2008–2009 crisis on the financial integration of stock markets. Finansy i kredit = Finances and credit, 2010, no. 26 (410), pp. 49–52. (In Russ.).
12. Fedorova E.A., Lazarev M.P. The impact of oil prices on the Russian financial market during the crisis. Finansy i kredit = Finances and credit, 2014, no. 20 (596), pp. 14–22. (In Russ.).
13. Ghosh S., Kanjilal K. Co-movement of international crude oil price and Indian stock market: Evidence from nonlinear cointegration tests. Energy Economics, 2016, vol. 53, pp. 111–117.
14. Fedorova E.A. Financial integration of stock markets of BRIC countries: an econometric analysis. Finansy i kredit = Finances and credit, 2011, no. 18 (450), pp. 24–29. (In Russ.).
15. Hatipoglu O., Uyar O. Do bubbles spill over? Estimating financial bubbles in emerging markets. Emerging Markets Finance and Trade, 2012, vol. 48, no. 5 sup., pp. 64–75.
16. Bekaert G., Harvey C.R. Foreign speculators, and emerging equity markets. The Journal of Finance, 2000, vol. 55, no. 2, pp. 565–613.
17. Forbes K. et al. Bubble thy neighbour: Portfolio effects and externalities from capital controls. Journal of International Economics, 2016, vol. 99, pp. 85–104.
18. Amihud Y. et al. Stock Liquidity and the Cost of Equity Capital in Global Markets. Journal of Applied Corporate Finance, 2015, vol. 27, no. 4, pp. 68–74.
19. Phillips P.C.B., Yu J. Dating the timeline of financial bubbles during the subprime crisis. Quantitative Economics, 2011, vol. 2, no. 3, pp. 455–491.
20. Arslanalp S. et al. China’s Growing Influence on Asian Financial Markets. Journal Issue, 2016, p. 173.
21. Tan L., et al. Herding behavior in Chinese stock markets: An examination of A and B shares. Pacific-Basin Finance Journal, 2008, vol. 16, no. 1, pp. 61–77.
22. Sornette D., Woodard R., Zhou W.X. The 2006–2008 oil bubble: Evidence of speculation, and prediction. Physica A: Statistical Mechanics and its Applications, 2009, vol. 388, no. 8, pp. 1571–1576.
23. Chirkova E.V. Prerequisites for the emergence of a financial bubble. Vestnik Finansovogo universiteta = Bulletin of Financial University, 2012, no. 1, pp. 79–88. (In Russ.).
24. Galí J., Gambetti L. The effects of monetary policy on stock market bubbles. Some evidence. National Bureau of Economic Research, 2014, no. 19981.
25. Gerding E.F. Law, bubbles and financial regulation. Routledge, 2013. Vol. 18.
26. White L.J. Preventing Bubbles: What Role for Financial Regulation? Cato Journal, 2011, vol. 31, no. 3, pp. 603–619.
Review
For citations:
Netunaev E.B. THE PHENOMENON OF CONTAGIOUS FINANCIAL BUBBLES. Finance: Theory and Practice. 2017;21(6):154-165. (In Russ.) https://doi.org/10.26794/2587-5671-2017-21-6-79-87
Views:
1255
Email this article 