Contagion around the October 1987 Stock Market Crash

European Journal of Operation Research, Forthcoming

38 Pages Posted: 16 Jul 2006  

Jian Yang

University of Colorado at Denver - Business School

David Bessler

Texas A&M University, College Station - Department of Agricultural Economics

Abstract

This study investigates financial contagion among seven international stock markets around the October 19, 1987 crash. Building on a recent advance in vector autoregression analysis by Swanson and Granger (1997), data-determined historical decompositions are conducted to provide a day-by-day picture of price fluctuation transmission, which is crucial to explore the financial contagion pattern characterized by rich dynamics. The results clearly show that the crash originated in the US market and that an upward movement in the Japanese market after the crash helped the recovery in the US market, which has not yet been empirically documented in the literature.

Keywords: International stock markets, stock market crash, historical decomposition, directed acyclic graphs

JEL Classification: G15, C32

Suggested Citation

Yang, Jian and Bessler, David, Contagion around the October 1987 Stock Market Crash. European Journal of Operation Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=915809

Jian Yang

University of Colorado at Denver - Business School ( email )

1250 14th St.
Denver, CO 80204
United States

David Bessler (Contact Author)

Texas A&M University, College Station - Department of Agricultural Economics ( email )

College Station, TX 77840
United States
979-845-3096 (Phone)

Paper statistics

Downloads
388
Rank
60,362
Abstract Views
2,689