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What Drives Contagion in Financial Markets? Liquidity Effects versus Information Spill‐ O ver
Author(s) -
Haß Lars Helge,
Koziol Christian,
Schweizer Denis
Publication year - 2014
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/j.1468-036x.2013.12011.x
Subject(s) - market liquidity , business , monetary economics , financial market , financial contagion , liquidity crisis , liquidity risk , contagion effect , information asymmetry , economics , financial system , financial economics , finance , financial crisis , macroeconomics
The objective of this paper is to study how contagion works in financial markets by identifying the mechanisms which drive the spill‐over of shocks from one market to other markets. To address this question we use open‐ended property funds (OPFs) as they offer a unique institutional setting which allows separating between liquidity and information spill‐over. We find that that liquidity risk captures the observed discounts very well when the danger of potential future impairments is low. Once the impending NAV impairments become very likely, also this component matters and attributes for a fraction of the total discount.