The Threat of Financial Contagion to Emerging Asia's Local Bond Markets: Spillovers from Global Crises

Date: January 2013
Type: Papers and Briefs
Series: Regional Economic Integration Working Papers
Author: Azis, Iwan; Mitra, Sabyasachi; Baluga, Anthony; Dime, Roselle


This paper employs multivariate generalized autoregressive conditional heteroskedastic (GARCH) models with a Baba–Engle–Kraft–Kroner (BEKK) specification to show significant shock and volatility spillovers from mature bond markets into select emerging Asian local currency bond markets.

Results reveal that while the growth of individual bond markets in recent years has been impressive, the threat of financial contagion to emerging Asian bond markets from shock and volatility spillovers in mature markets is real. Although emerging Asian local bond market volatilities are more determined by their own respective shocks and volatilities, in some markets the direct shock and volatility spillovers remain significant.

An extended analysis also shows indirect spillovers within domestic asset markets and across economies. The results have important implications for the monitoring and coordination of policies, not just within national jurisdictions but also in regional and global settings, in order to maintain financial stability.


  • Abstract
  • Introduction
  • Crisis and the Growth of Bond Markets
  • Crisis, Yields, and Volatility Trends
  • Measuring Shock and Volatility Spillovers and Own-Market Persistence
  • Summary of Results
  • Conclusion
  • References
  • Appendix