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Contagion in financial markets after September 11: myth or reality?
Author(s) -
Hon Mark T.,
Strauss Jack,
Yong SooKeong
Publication year - 2004
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.2004.00079.x
Subject(s) - stock (firearms) , financial crisis , economics , diversification (marketing strategy) , financial market , stock market , financial contagion , monetary economics , terrorism , financial economics , business , finance , macroeconomics , geography , context (archaeology) , archaeology , marketing
Major global events can lead to a change in the cross‐country correlation of assets. Using stock prices from 25 economies, we test whether the terrorist attack in the United States on September 11, 2001, resulted in a contagion—an increase in correlation across global financial markets. Unlike prior works on contagion, we model the intrinsic heteroskedasticity. Our results indicate that international stock markets, particularly in Europe, responded more closely to U.S. stock market shocks in the three to six months after the crisis than before. Our evidence suggests that the benefits of international diversification in times of crisis are substantially diminished.