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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.

Suggested Citation

  • Mark T. Hon & Jack Strauss & Soo-Keong Yong, 2004. "Contagion in financial markets after September 11: myth or reality?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 27(1), pages 95-114.
  • Handle: RePEc:bla:jfnres:v:27:y:2004:i:1:p:95-114
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    1. Agmon, Tamir, 1972. "The Relations Among Equity Markets: A Study of Share Price Co-Movements in the United States, United Kingdom, Germany and Japan," Journal of Finance, American Finance Association, vol. 27(4), pages 839-855, September.
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