Did Globalization Kill Contagion?
62 Pages Posted: 10 Mar 2020 Last revised: 30 Apr 2020
Date Written: February 7, 2020
Does financial globalization lead to contagion? We scrutinize linkages between international stock markets in a long historical perspective (1880-2014). Our results highlight that without globalization, contagion cannot exist. However, if cross-market correlations are very high, globalization kills contagion. We show that financial contagion was absent from stock markets in both the period of deglobalization of 1918-1971 and the era of “extreme” globalization of 1972-2014 but was present in the period of “moderate” globalization of 1880-1914. Our results suggest that contagion could become a significant problem if financial markets return to a more moderate level of globalization.
Keywords: contagion, globalization, financial crises
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