The Effect of Data Dissemination Agreements on Financial Volatility and Contagion Open Access
Collett, Aaron Herawan (2011)
Published
Abstract
The spillover of national financial crises between nations, or
contagion, has risen in line with
increased global economic and financial interconnectedness.
However, the recent history of
contagious crises show that patterns of contagion are often
difficult to predict. Accordingly, this
study addresses the puzzle of unpredictable trends in contagion.
The study tackles this general
puzzle by investigating how volatility can be spread between
countries through an information
channel of contagion. Information contagion occurs when market
participants make investment
decisions based on imperfect information. More specifically, the
paper investigates if incidents
of information contagion can be lessened if governments improve
their data provision practices.
In particular, the paper investigates the effect of subscription to
the International Monetary
Fund's (IMF) Special Data Dissemination Standard (SDDS) on
contagion. I hypothesize that
countries that provide better quality data and signal their
commitment to this international
standard by joining the institution experience less contagion of
financial volatility. This
relationship is tested in the paper in a multivariate regression of
the effect of SDDS subscription
on domestic volatility and contagion. The test sample consists of
25 countries and uses daily data
from 1998 to 2009. The study offers the first empirical test of the
relationship between the SDDS
and contagion. The findings confirm the paper's hypotheses and show
that SDDS accession both
reduces domestic volatility and insulates nations from contagion of
volatility, especially in times
of crisis.
Table of Contents
Table of Contents
I. Introduction
pg.1
II. Literature Review
4
a. Contagion
4b. SDDS
11III. Theory
24
a. Hypotheses
27IV. Research Design
30
a. Dependent Variable
30b. Independent Variable
33c. Control Variables
35V. Results
39VI. Conclusion
47VII. Appendices
52VIII. Bibliography
56 Tables and ChartsTable 1 - Information Demands and SDDS Requirements
pg. 13
Chart 1 - SDDS Subscription by Year (Cumulative)
15
Chart 2 - SDDS Implementation by Year (Cumulative)
16
Chart 3 - SDDS Participants by Market Classification
17
Chart 4 - Regional Distribution of SDDS Participants
18
Table 2 - Data Provision Quality, full sample
23
Table 3 - Data Provision Quality, excluding advanced economies
24
Table 4 - Data Provision Quality, excluding advanced economies and LDCs
24
Table 5 - Subscribed v. Implemented (% by column)
34
Table 6 - Subscribed v. Implemented (% by row)
34
Table 7 - Subscribed v. Implemented (% of total observations)
34
Table 8 - XS-TR-CR Correlation
37
Table 9 - Preliminary Regression Tests
38
Table 10 - Fixed Effects Wald Tests
39
Chart 5 - LOWESS Fit Lines
40
Table 11 - Regression Results
41
Chart 6 - Contagion Trends by SDDS Status
43
Table 12 - Regression excluding Yj,t-1 > 5
44
Chart 7 - Domestic Volatility Relative to Accession
46
Chart 8 - Contagion Relative to Subscription
47
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