Are all forms of financial integration equally risky? Asset price contagion during the global financial crisis

• We examine financial integration and asset price comovements in crisis times.
• We construct bilateral financial and trade linkages for 46 countries.
• We construct daily equity and bond prices’ comovements over time.
• Debt integration and common lenders increased co-movements in crisis times.
• During this period, real trade linkages also increased equity price co-movements.

Using the 2008–2009 global financial crisis, this paper examines the role of different forms of international financial integration for asset price contagion in crisis times. The analysis uses bilateral financial and trade linkages and daily data on equity and bond prices for a sample of 46 countries between 2002 and 2011. Bilateral debt integration and common bank lenders are found to have transmitted financial turmoil through equity and bond markets at the height of the crisis. During this period, real trade linkages also increased equity price co-movements. By contrast, no robust evidence is found that equity or FDI integration increased asset price co-movements during the crisis.