What Drives Contagion in Financial Markets? Liquidity Effects versus Information Spill†Over

Lars Helge Haß, Christian Koziol and Denis Schweizer

European Financial Management, 2014, vol. 20, issue 3, 548-573

Abstract: The objective of this paper is to study how contagion works in financial markets by identifying the mechanisms which drive the spill†over of shocks from one market to other markets. To address this question we use open†ended property funds (OPFs) as they offer a unique institutional setting which allows separating between liquidity and information spill†over. We find that that liquidity risk captures the observed discounts very well when the danger of potential future impairments is low. Once the impending NAV impairments become very likely, also this component matters and attributes for a fraction of the total discount.

Date: 2014
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https://doi.org/10.1111/j.1468-036X.2013.12011.x

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