2008-11-05
Contagion as Domino Effect in Global Stock Markets
Publication
Publication
ERIM report series research in management Erasmus Research Institute of Management
This paper shows that stock market contagion operates through a domino effect, where small crashes evolve into more severe crashes. Using a novel unifying framework we model the occurrence of local, regional and global crashes in terms of past occurrences of these different crashes and financial variables. We find convincing evidence that global crashes do not occur abruptly but are preceded by local and regional crashes. Additionally, interest rates, bond returns and volatility affect the probabilities of different crash types, indicating interdependence. We show that in forecasting global crashes our model outperforms a binomial model for global crashes only.
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Erasmus Research Institute of Management | |
hdl.handle.net/1765/13835 | |
ERIM Report Series Research in Management | |
ERIM report series research in management Erasmus Research Institute of Management | |
Organisation | Erasmus Research Institute of Management |
Markwat, T., Kole, E., & van Dijk, D. (2008). Contagion as Domino Effect in Global Stock Markets (No. ERS-2008-071-F&A). ERIM report series research in management Erasmus Research Institute of Management. Retrieved from http://hdl.handle.net/1765/13835 |