Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/181570
Authors: 
Avdiu, Besart
Gruhle, Tobias
Year of Publication: 
2018
Series/Report no.: 
Beiträge zur Jahrestagung des Vereins für Socialpolitik 2018: Digitale Wirtschaft - Session: International Financal Markets II F19-V1
Abstract: 
We show that information frictions can explain financial contagion without correlated fundamentals and explain why emerging markets are more susceptible to contagion. Costly information may cause investors to group country signals, because such imprecise signals are cheaper. These joint signals then cause asset prices to comove, which can be observed as contagion. Due to lower demand for country-specific information and lower risk weighted returns, it is likelier that investors group signals of emerging markets, thereby making them more prone to contagion. We find empirical evidence for our predictions using a novel data set on the number of joint news articles and exploit exogenous variation in news due to terrorism.
Subjects: 
Financial Crises
Emerging Markets
Contagion
Information Choice
News
JEL: 
D8
F30
G11
Document Type: 
Conference Paper

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