International diversification with American depository receipts, financial crises and the United States financial services industry

I examine the impact of the Russian financial crisis on U.S. bank and non-bank financial institutions with an emphasis on whether such a crisis has resulted in any contagion effect on the financial sector. I find a statistically significant increase in adjusted correlation between portfolio returns during the crisis period, especially during the peak of the crisis. I also find that commercial banks and S&Ls portfolios lost market value significantly with events starting with the debt moratorium and ruble devaluation on August 17, 1998. Much of the significant losses were driven by smaller size portfolios of financial institutions. The more pronounced losses by commercial banks, and most importantly, by smaller commercial, S&Ls, and investment banks in the third sub-period following the debt moratorium imply a form of contagion effect.; I also examine both the contagion and the "too-big-to-fail" hypotheses in the context of the Long Term Capital Management crisis in the U.S. financial services industry. The results show that exposed commercial and investments banks lost market values significantly around important events surrounding the near collapse of LTCM, but the losses experienced by investment banks are much higher than the losses faced by commercial banks. Smaller S&L institutions and bigger insurance companies were also affected by the crisis, implying a form of contagion effect in the financial sector. I find some evidence of a 'too-big-to-fail' policy with the involvement of the Fed in LTCM, as perceived by the markets.; I also try to find diversification benefits of different country ADRs portfolios from the perspective of an U.S. investor. The findings show that U.S. investors needed to invest in both ADRs and country portfolios in developed region in the eighties, and in Latin American countries in early nineties. During the early and late nineties, I find substitutability between ADRs and country portfolios in DCs. As more and more ADRs are enlisted in the US market from developed countries over time, the ADRs become substitutes to country. On the other hand, U.S. investors can achieve the diversification benefits by investing ADRs along with U.S. market index in Asia.