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Financial Contagion And Market Liquidity: Evidence From The Asian Crisis, Shantaram P. Hegde, Rupendra Paliwal
Financial Contagion And Market Liquidity: Evidence From The Asian Crisis, Shantaram P. Hegde, Rupendra Paliwal
WCBT Faculty Publications
Models of financial crisis and contagion predict that an economic crisis turns into a crisis of market liquidity in the presence of borrowing constraints, information asymmetry and risk aversion. Based on the firm-level data on a sample of exposed and unexposed US stocks to the Asian currency crisis, we find a significant increase (decrease) in the crisis period bid-ask spreads (depth) and their volatilities for both the groups. While our results underscore the imprints of flight to quality, we detect little causal patterns in liquidity innovations. An important implication of our findings, as evidenced by the recent crisis, is that …