Transmission of Volatility between Stock Markets
- 1 January 1990
- journal article
- Published by Oxford University Press (OUP) in The Review of Financial Studies
- Vol. 3 (1), 5-33
- https://doi.org/10.1093/rfs/3.1.5
Abstract
This article investigates why, in October 1987, almost all stock markets fell together despite widely differing economic circumstances. We construct a model in which 'contagion' between markets occurs as a 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. We offer supporting evidence for contagion effects using two different sources of data.Keywords
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