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Renatas Kizys and Christian Pierdzioch
 
''Contagious speculative bubbles: A note on the Greek sovereign debt crisis''
( 2011, Vol. 31 No.4 )
 
 
The Greek sovereign debt crisis of 2009/2010 fostered widespread fears of contagion. We analyzed the danger of contagion by studying to which extent news to speculative bubbles in the Greek equity market spread to the equity markets of Portugal, Ireland, Italy, and Spain. To this end, we estimated a version of the present-discounted value model of equity valuation extended to include a rational stochastic speculative bubble. We then studied cross-country causal links between news to speculative bubbles. We found evidence of causality from Greece to the other countries, but no strong evidence of reversed causality. This finding implies that, as far as equity markets are concerned, movements in speculative bubbles in the Greek equity market may in fact have the potential to spread in a contagious way to the other European countries in our sample.
 
 
Keywords: Speculative bubbles, Contagion, Greek sovereign debt crisis
JEL: G0 - Financial Economics: General
F3 - International Finance: General
 
Description of Appendix:

Due to a programming error, Tables 1 and 2 do not contain the results described in the main body of the text. We have updated Tables 1 and find that the main result we describe is still supported.
EB-11-00547-Appendix.pdf
 
 
Manuscript Received : Aug 07 2011 Manuscript Accepted : Nov 28 2011

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