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Market Contagion: Evidence from the Panics of 1854 and 1857

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  • Cormac O Grada
  • Morgan Kelly

Abstract

To test a model of contagion--where individuals hear some bad news and communicate it to their acquaintances, who then pass it on, leading to a market panic--requires a knowledge of the information networks of participants, something hitherto unavailable. For two panics in the 1850s this paper examines the behavior of Irish depositors in a New York bank. As recent immigrants, their social network was determined largely by their place of origin in Ireland, and where they lived in New York. During both panics this social network turns out to be the prime determinant of behavior.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.90.5.1110
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 90 (2000)
Issue (Month): 5 (December)
Pages: 1110-1124

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Handle: RePEc:aea:aecrev:v:90:y:2000:i:5:p:1110-1124

Note: DOI: 10.1257/aer.90.5.1110
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  1. Grinblatt, Mark & Titman, Sheridan & Wermers, Russ, 1995. "Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior," American Economic Review, American Economic Association, vol. 85(5), pages 1088-1105, December.
  2. Cormac O Grada & Eugene N. White, 2002. "Who Panics During Panics? Evidence from a Nineteenth Century Savings Bank," NBER Working Papers 8856, National Bureau of Economic Research, Inc.
  3. Charles W. Calomiris & Gary Gorton, 1991. "The Origins of Banking Panics: Models, Facts, and Bank Regulation," NBER Chapters, in: Financial Markets and Financial Crises, pages 109-174 National Bureau of Economic Research, Inc.
  4. Borjas, George J, 1995. "Ethnicity, Neighborhoods, and Human-Capital Externalities," American Economic Review, American Economic Association, vol. 85(3), pages 365-90, June.
  5. Lakonishok, Josef & Shleifer, Andrei & Vishny, Robert W., 1992. "The impact of institutional trading on stock prices," Journal of Financial Economics, Elsevier, vol. 32(1), pages 23-43, August.
  6. Calvo, Guillermo A. & Mendoza, Enrique G., 1996. "Mexico's balance-of-payments crisis: a chronicle of a death foretold," Journal of International Economics, Elsevier, vol. 41(3-4), pages 235-264, November.
  7. V.V. Chari & Ravi Jagannathan, 1984. "Banking Panics," Discussion Papers 618, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. S. Rao Aiyagari, 1988. "Banking panics, information, and rational expectations equilibrium," Working Papers 320, Federal Reserve Bank of Minneapolis.
  9. Chari, V V & Jagannathan, Ravi, 1988. " Banking Panics, Information, and Rational Expectations Equilibrium," Journal of Finance, American Finance Association, vol. 43(3), pages 749-61, July.
  10. Calomiris, Charles W. & Schweikart, Larry, 1991. "The Panic of 1857: Origins, Transmission, and Containment," The Journal of Economic History, Cambridge University Press, vol. 51(04), pages 807-834, December.
  11. Shiller, 021Robert J. & Pound, John, 1989. "Survey evidence on diffusion of interest and information among investors," Journal of Economic Behavior & Organization, Elsevier, vol. 12(1), pages 47-66, August.
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