No contagion, only globalization and flight to quality

In this article, tests for globalization and contagion are separated using an ex ante definition of crises, and contagion tests are neutralized with respect to globalization effects. A large database is constructed to study the stability of correlation matrices for four asset classes: equities, government bonds, investment grade corporate bonds, and high-yield corporate bonds, in four geographical zones. Overall, the results confirm the instability of correlations and point to a combination of globalization and flight to quality, while emphasizing that contagion on the equity markets appears as an artifact due to globalization. ► We use tests for correlation stability. ► The database is made of four asset classes in four geographical zones. ► We consider all financial crises from 1978 to 2010. ► The results point to a combination of globalization and flight to quality. ► Contagion on the equity markets appears as an artifact due to globalization.