Flight to Quality: Investor Risk Tolerance and the Spread of Emerging Market Crises

  • Barry Eichengreen
  • Galina Hale
  • Ashoka Mody


The financial crises of the 1990s have raised new concerns about the operation of international financial markets. Prominent among these are worries about sharp changes in investor sentiment and their cross-border repercussions. The Mexican crisis dramatically altered investor sentiment toward emerging markets and echoed through Latin America, showing up in Argentina as the Tequila Effect. The spillover from the Thai crisis was limited initially to the Asian Tigers, but by the end of 1997 a wide variety of other developing countries were affected to some degree. In addition, Russia’s default in the summer of 1998, in conjunction with the all-but-failure of Long-Term Capital Management, precipitated a flight to quality with a strong negative impact on market sentiment regarding the entire population of emerging-market borrowers.


Bond Market Export Growth Investor Sentiment International Financial Statistics Inverse Mill Ratio 
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Copyright information

© Springer Science+Business Media New York 2001

Authors and Affiliations

  • Barry Eichengreen
    • 1
  • Galina Hale
    • 1
  • Ashoka Mody
    • 2
  1. 1.University of CaliforniaBerkeleyUSA
  2. 2.The World BankUSA

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