Global Linkages Pre-Conference

• Author: Robin Brooks/Kristin Forbes/Ashoka Mody
• Pages: 10-11

Page 10

The papers presented at the Global Linkages Pre- Conference addressed one of the following four topics:

* trends in comovements across national stock markets,

* contagion spillovers across financial markets,

* rise in comovement of real variables across countries, and

* changing importance of financial and real linkages. Several presenters proposed studying the sources for the comovement across and within national equity markets. Andrew Karolyi (Ohio State University, Fisher College of Business) plans to use a new database on American depository receipts (ADRs). ADRs are a mechanism by which companies in emerging markets can raise risk capital in the United States. Karolyi will explore whether the accelerating trend among firms in emerging markets to issue ADRs is an important driver underlying the rise in correlations across equity markets. Randall Morck (University of Alberta, Business School) proposes to examine how the degree of comovement of individual stocks within an emerging economy has changed over time and to what extent these changes can be related to changes in emerging economies' institutional environments and in the strengthening of their linkages to the global economy. He finds that the comovement of individual stock returns declines as an economy develops stronger links with the world economy or develops sounder financial, legal, and economic institutions. William Goetzman (Yale University, School of Management), in a joint project with Geert Rouwenhorst and Lingfeng Li (both also of Yale University), will examine the correlation structure of the major world equity markets over the past 150 years. First results show that correlations have varied considerably through time and have been highest during periods of economic and financial integration, such as the late nineteenth and twentieth centuries.

Some presenters focused on contagion spillovers in financial markets. Graciela Kaminsky (George Washington University) and Carmen Reinhart (IMF) propose investigating the spread of market turbulence around the world. They reported on new indices to measure "weak" and "strong" global linkages at times of turbulence and evaluated the effects of turmoil in three crisis-prone emerging markets: Brazil, Russia, and Thailand. Preliminary results show that turbulence in those countries spreads globally mainly when the turbulence...