Contagion in financial markets after September 11: myth or reality?
Version of Record online: 9 FEB 2004
Journal of Financial Research
Volume 27, Issue 1, pages 95–114, March 2004
How to Cite
Hon, M. T., Strauss, J. and Yong, S.-K. (2004), Contagion in financial markets after September 11: myth or reality?. Journal of Financial Research, 27: 95–114. doi: 10.1111/j.1475-6803.2004.00079.x
- Issue online: 9 FEB 2004
- Version of Record online: 9 FEB 2004
Major global events can lead to a change in the cross-country correlation of assets. Using stock prices from 25 economies, we test whether the terrorist attack in the United States on September 11, 2001, resulted in a contagion—an increase in correlation across global financial markets. Unlike prior works on contagion, we model the intrinsic heteroskedasticity. Our results indicate that international stock markets, particularly in Europe, responded more closely to U.S. stock market shocks in the three to six months after the crisis than before. Our evidence suggests that the benefits of international diversification in times of crisis are substantially diminished.