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Contagion in financial markets after September 11: myth or reality?

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  • Mark T. Hon
  • Jack Strauss
  • Soo-Keong Yong

Abstract

Major global events can lead to a change in the cross-country correlation of assets. Using stock prices from 25 economies, we test whether the terrorist attack in the United States on September 11, 2001, resulted in a contagion-an increase in correlation across global financial markets. Unlike prior works on contagion, we model the intrinsic heteroskedasticity. Our results indicate that international stock markets, particularly in Europe, responded more closely to U.S. stock market shocks in the three to six months after the crisis than before. Our evidence suggests that the benefits of international diversification in times of crisis are substantially diminished. 2004 The Southern Finance Association and the Southwestern Finance Association.

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Bibliographic Info

Article provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.

Volume (Year): 27 (2004)
Issue (Month): 1 ()
Pages: 95-114

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Handle: RePEc:bla:jfnres:v:27:y:2004:i:1:p:95-114

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Cited by:
  1. Bowman, Robert G. & Chan, Kam Fong & Comer, Matthew R., 2010. "Diversification, rationality and the Asian economic crisis," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 18(1), pages 1-23, January.
  2. Christos Kollias & Stephanos Papadamou & Costas Siriopoulos, 2013. "European Markets’ Reactions to Exogenous Shocks: A High Frequency Data Analysis of the 2005 London Bombings," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 1(4), pages 154-167, November.
  3. Mollah, Sabur & Zafirov, Goran & Quoreshi, AMM Shahiduzzaman, 2014. "Financial Market Contagion during the Global Financial Crisis," CITR Working Paper Series, Center for Innovation and Technology Research, Blekinge Institute of Technology 2014/05, Center for Innovation and Technology Research, Blekinge Institute of Technology.
  4. Karolyi, G. Andrew, 2006. "The Consequences of Terrorism for Financial Markets: What Do We Know?," Working Paper Series, Ohio State University, Charles A. Dice Center for Research in Financial Economics 2006-6, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  5. Helena Chuliá Soler & Pilar Soriano Felipe & Francisco Climent & Hipòlit Torró, 2007. "Volatility Transmission Patterns And Terrorist Attacks," Working Papers. Serie EC, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 2007-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  6. Nikkinen, Jussi & Omran, Mohammad M. & Sahlstrom, Petri & Aijo, Janne, 2008. "Stock returns and volatility following the September 11 attacks: Evidence from 53 equity markets," International Review of Financial Analysis, Elsevier, Elsevier, vol. 17(1), pages 27-46.
  7. Mahfuzul Haque & Imen Kouki, 2009. "Effect of 9/11 on the conditional time-varying equity risk premium: evidence from developed markets," Journal of Risk Finance, Emerald Group Publishing, Emerald Group Publishing, vol. 10(3), pages 261-276, May.
  8. Kotkatvuori-Örnberg, Juha & Nikkinen, Jussi & Äijö, Janne, 2013. "Stock market correlations during the financial crisis of 2008–2009: Evidence from 50 equity markets," International Review of Financial Analysis, Elsevier, Elsevier, vol. 28(C), pages 70-78.
  9. Hon, Mark T. & Strauss, Jack K. & Yong, Soo-Keong, 2007. "Deconstructing the Nasdaq bubble: A look at contagion across international stock markets," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 17(3), pages 213-230, July.
  10. Lee, Hsien-Yi & Wu, Hsing-Chi & Wang, Yung-Jang, 2007. "Contagion effect in financial markets after the South-East Asia Tsunami," Research in International Business and Finance, Elsevier, Elsevier, vol. 21(2), pages 281-296, June.
  11. Kollias, Christos & Papadamou, Stephanos & Stagiannis, Apostolos, 2011. "Terrorism and capital markets: The effects of the Madrid and London bomb attacks," International Review of Economics & Finance, Elsevier, Elsevier, vol. 20(4), pages 532-541, October.
  12. Wang, Jia & Meric, Gulser & Liu, Zugang & Meric, Ilhan, 2009. "Stock market crashes, firm characteristics, and stock returns," Journal of Banking & Finance, Elsevier, Elsevier, vol. 33(9), pages 1563-1574, September.
  13. Essaddam, Naceur & Karagianis, John M., 2014. "Terrorism, country attributes, and the volatility of stock returns," Research in International Business and Finance, Elsevier, Elsevier, vol. 31(C), pages 87-100.
  14. Athanassiou, Emmanuel & Kollias, Christos & Syriopoulos, Theodore, 2006. "Dynamic volatility and external security related shocks: The case of the Athens Stock Exchange," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 16(5), pages 411-424, December.
  15. Charles, Amelie & Darne, Olivier, 2006. "Large shocks and the September 11th terrorist attacks on international stock markets," Economic Modelling, Elsevier, Elsevier, vol. 23(4), pages 683-698, July.
  16. Isabella Massa & Andreas Billmeier, 2007. "Go Long or Short in Pyramids? News From the Egyptian Stock Market," IMF Working Papers 07/179, International Monetary Fund.
  17. Abdulnasser Hatemi-J & R. Scott Hacker, 2005. "An alternative method to test for contagion with an application to the Asian financial crisis," Applied Financial Economics Letters, Taylor and Francis Journals, Taylor and Francis Journals, vol. 1(6), pages 343-347, November.
  18. Hsien-Yi LEE, 2011. "Contagion in International Stock Markets During the sub Prime Mortgage Crisis," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 8, pages 141-158, December.
  19. Hsien-Yi Lee, 2012. "Contagion in International Stock Markets during the Sub Prime Mortgage Crisis," International Journal of Economics and Financial Issues, Econjournals, vol. 2(1), pages 41-53.
  20. Mende, Alexander, 2005. "09/11 on the USD/EUR Foreign Exchange Market," Hannover Economic Papers (HEP), Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät dp-312, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  21. Gazi Salah Uddin & Mohamed Arouri & Aviral Kumar Tiwari, 2014. "Co-movements between Germany and International Stock Markets: Some New Evidence from DCC-GARCH and Wavelet Approaches," Working Papers, Department of Research, Ipag Business School 2014-143, Department of Research, Ipag Business School.
  22. Douch, Mohamed & Essaddam, Naceur, 2011. "Short and Long-Term Effects of September 11 on Stock Returns: Evidence from U.S. Defense Firms," MPRA Paper 46529, University Library of Munich, Germany, revised Mar 2013.

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