Has International Financial Co-movement Changed? Emerging Markets In The 2007-2009 Financial Crisis

Emerging Market (EM) assets have historically been regarded as inherently risky and particularly vulnerable to international shocks that result in a general increase in investor risk perceptions. In this paper, the authors assess the ongoing relevance of this view by examining the linkages between EM and non-EM stock and bond markets in the past two decades, with a focus on how these relationships played out during the global financial crisis of 2007-2009. They evaluate how these linkages have evolved over the period 1992-2009, through statistical tests of whether the volatility of EM financial markets changed - either in their response to international shocks originating in advanced economy markets or in their independent fluctuations.