Testing contagion effects of the 2007 global financial crisis on exchange rates and stock market of selected Southeast Asian countries

Contagion refers to the transmission of economic shocks or disturbances of a country to other related countries evidenced by increase in the co-movements of their economic indicators. This paper performs statistical tests for pre-selected dates to verify as to when a structural break has really occurred that sparked the 2007 Global Financial Crisis which originated in the U.S. The main goal of this research is to determine evidence of contagion in selected Southeast Asian countries, namely the Philippines, Indonesia, Malaysia, Thailand and Singapore, using weekly data on two economic indicators: exchange rates and stock market indices. Results in the exchange rate market are varied, with only Indonesia and Thailand testing significantly. However, there appears to be an almost uniform result among the countries in their equity markets. All of the stock indices of the selected Southeast Asian countries appear to be affected by the crisis with a considerable increase in its correlation with the U.S. in the crisis period from the pre-crisis period-except for the Philippines, where the result, although negative, was not significant