Transmission of Volatility Between Stock Markets
This paper investigates why, in October 1987, almost all stock markets fell together despite widely differing economic circumstances. The idea is that "contagion" between markets occurs as the result of attempts by rational agents to infer information from price changes in other markets. This provides a channel through which a "mistake" in one market can be transmitted to other markets. Hourly stock price data from New York, Tokyo and London during an eight month period around the crash offer support for the contagion model. In addition, the magnitude of the contagion coefficients are found to increase with volatility.
|Date of creation:||Mar 1989|
|Date of revision:|
|Publication status:||published as Review of Financial Studies, Vol. 3, No. 1, pp. 5-33, 1990.|
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- Bray, Margaret, 1985. "Rational Expectations, Information and Asset Markets: An Introduction," Oxford Economic Papers, Oxford University Press, vol. 37(2), pages 161-95, June.
- Green, Jerry, 1977. "The Non-existence of Informational Equilibria," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 451-63, October.
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- Sanford Grossman, 1978. "Further results on the informational efficiency of competitive stock markets," Special Studies Papers 114, Board of Governors of the Federal Reserve System (U.S.).
- Grossman, Sanford, 1978. "Further results on the informational efficiency of competitive stock markets," Journal of Economic Theory, Elsevier, vol. 18(1), pages 81-101, June.
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