7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 1/61
Fordham University
DigitalResearch@Fordham
CRIF Working Paper seriesFrank J. Petrilli Center for Research in International
Finance
9-16-1999
Liquidity and Contagion in Financial MarketsDavid Backus New York University
Silverio ForesiGoldman Sachs Asset Management
Liuren WuFordham University
Follow this and additional works at: hp://fordham.bepress.com/crif_working_papers
Part of the Finance and Financial Management Commons
Tis Article is brought to you for free and open access by the Frank J. Petrilli Center for Research in International Finance at
DigitalResearch@Fordham. It has been accepted for inclusion in CRIF Working Paper series by an authorized administrator of
DigitalResearch@Fordham. For more information, please contact [email protected].
Recommended CitationBackus, David; Foresi, Silverio; and Wu, Liuren, "Liquidity and Contagion in Financial Markets" (1999). CRIF Working Paper series.Paper 31.hp://fordham.bepress.com/crif_working_papers/31
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 2/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 3/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 4/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 5/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 6/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 7/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 8/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 9/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 10/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 11/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 12/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 13/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 14/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 15/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 16/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 17/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 18/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 19/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 20/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 21/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 22/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 23/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 24/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 25/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 26/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 27/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 28/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 29/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 30/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 31/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 32/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 33/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 34/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 35/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 36/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 37/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 38/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 39/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 40/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 41/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 42/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 43/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 44/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 45/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 46/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 47/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 48/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 49/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 50/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 51/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 52/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 53/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 54/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 55/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 56/61
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 57/61
0 5 10 15−25
−20
−15
−10
−5
0
5
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 58/61
0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.89.43
9.44
9.45
9.46
9.47
9.48
9.49
0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.81
2
3
4
5
6
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 59/61
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 10.5
0.6
0.7
0.8
0.9
1
1.1
1.2
1.3
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 60/61
0 0.5 1 1.5 2 2.5 30
5
10
15
20
25
IIIIII
7/23/2019 Liquidity and Contagion in Financial Markets
http://slidepdf.com/reader/full/liquidity-and-contagion-in-financial-markets 61/61
0.5 0.6 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1.50
0.5
1
1.5
0.5 0.6 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1.50
0.5
1
1.5