The Russian Default and the Contagion to Brazil

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Abstract
The paper investigates the contagion from Russia to Brazil using several sets of data, with different frequencies and performed several exercises. We analyze this case study under two dimensions: players involved and timing of events. The paper concludes that the data does not seem to reflect a compensatory liquidation of assets story by international institutional investors. It does contribute, however, to the suspicion that the contagion from Russia was triggered by foreign investors panicking from the Russian crisis and joining local residents on their speculation against the currency. Also, the correlations in the Brady markets are very high and increase significantly (even after adjusting for the bias) during the crisis. This gives support to the fact that if there was a contagion from Russia to Brazil, the most likely place of the transmission was the off-shore Brady market. Finally, the paper does not support the alternative hypothesis that it was the liquidity crisis in mature markets, and not the Russian crisis, that timed the crisis in Brazil.

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