Working Paper: CEPR ID: DP14395
Authors: Olivier Accominotti; Marie Brire; Aurore Burietz; Kim Oosterlinck; Ariane Szafarz
Abstract: 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 history; stock market; market interdependence; economic integration
JEL Codes: N20; F65; F36; G15; E44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| financial market globalization (F30) | stock market contagion (E44) |
| absence of globalization (F69) | absence of stock market contagion (G10) |
| high cross-market correlations (C10) | suppression of stock market contagion (E44) |
| moderate globalization (F69) | presence of stock market contagion (E44) |
| extreme globalization (F69) | absence of stock market contagion (G10) |
| deglobalization (F69) | absence of stock market contagion (G10) |