Finance and Economics Discussion Series: A Rational Expectations Model of Financial Contagion - Softcover

Kodres, Laura E; Pritsker, Matthew

 
9781288718993: Finance and Economics Discussion Series: A Rational Expectations Model of Financial Contagion
Softcover
ISBN 10: 1288718993 ISBN 13: 9781288718993
Publisher: Bibliogov, 2013

Synopsis

We develop a multiple rational expectations model of securities prices to explain the determinants of financial market contagion. Although the model allows contagion through several channels, our primary focus is on contagion through cross-market rebalancing. Through this channel, investors transmit idiosyncratic shocks from one market to others by adjusting their portfolios' exposures to macroeconomic risks which are shared across markets. The pattern and severity of financial contagion depends on markets' sensitivities to shared macroeconomic risk factors, and on the amount of information asymmetry in each market. The model can generate contagion in the absence of news, and between markets that do not directly share macroeconomic risks.

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Publisher
Bibliogov
Publication date
2013
Language
English
ISBN 10 
1288718993
ISBN 13 
9781288718993
Binding
Paperback
Number of pages
46