Transmission of volatility between stock markets |
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| Authors: | King MA; Wadhwani S |
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| Institution: | London School of Economics, Houghton Street, London, WC2A 2AE, UK |
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| Abstract: | This article investigates why, in October 1987, almost all stockmarkets fell together despite widely differing economic circumstances.We construct a model in which 'contagion' between markets occursas a result of attempts by rational agents to infer informationfrom price changes in other markets. This provides a channelthrough which a 'mistake' in one market can be transmitted toother markets. We offer supporting evidence for contagion effectsusing two different sources of data. |
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