Journal
EUROPEAN JOURNAL OF OPERATIONAL RESEARCH
Volume 184, Issue 1, Pages 291-310Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.ejor.2006.04.046
Keywords
international stock markets; stock market crash; historical decomposition; directed acyclic graphs
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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, N., Granger, C.W.J., 1997. Impulse response functions based on a causal approach to residual orthogonalization in vector autoregression. Journal of the American Statistical Association 92, 357-367], 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. (C) 2006 Elsevier B.V. All rights reserved.
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