European Journal of Operation Research, Forthcoming
38 Pages Posted: 16 Jul 2006
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: 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