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Information Diffusion in International Markets

  • Alejandro Izquierdo

    ()

  • Jacques Morriset
  • Marcelo Olarreaga

Specific information on trade and financial markets across international borders is costly to acquire. Sellers and buyers rely instead on information obtained from partner behavior in other countries. Three channels are identified through which information is disseminated in import and equity markets of 14 OECD countries. The first consists of information spillovers from commercial to financial markets and vice-versa. We find strong evidence in support of the first direction and some for the reverse, suggesting that traders use common information, frequently from the same sources, such as financial intermediaries. The second and third channels emphasize seller and buyer reputation in third markets. They are equally important in explaining bilateral import flows, but buyer reputation appears to be more relevant for equity flows. All three channels may help better explain contagion effects across markets and countries.

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Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 4335.

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Date of creation: Jul 2003
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Handle: RePEc:idb:wpaper:4335
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