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Financial Contagion through Attention Reallocation: An Empirical AnalysisJordi MondriaUniversity of Toronto - Department of Economics Climent Quintana-DomequePrinceton University - Department of Economics December 2006 Abstract: This paper provides suggestive evidence of financial contagion between regions by fluctuations in international investors' attention allocation. Using Financial Times news stories about Thailand as a proxy for attention allocated to Southeast Asia, we find that the increase in uncertainty about Southeast Asian stock markets between January of 1997 and July of 1998 was associated with a higher attention allocated to this region. We also find that one more news story about Thailand in the Financial Times was statistically associated with a 6% (5%) increase in the stock market volatility of Brazil (Chile). This finding is consistent with financial contagion through attention reallocation of international investors.
Number of Pages in PDF File: 24 Keywords: Contagion, Emerging Markets, Financial Crisis, Rational Inattention JEL Classification: F30, G15, D83 working papers seriesDate posted: January 15, 2007Suggested CitationContact Information
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