A wake-up call: information contagion and strategic uncertainty

Toni Ahnert and Christoph Bertsch

No 282, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: A financial crisis in one region is a wake-up call for investors in other regions. If the correlation across regional fundamentals is potentially positive but uncertain ex-ante, investors acquire information about this correlation to determine their exposure. Financial contagion can occur in the absence of ex-post exposure, due to elevated strategic uncertainty among informed investors. This novel wake-up call theory of contagion explains how currency crises, bank runs, and debt crises spread across regions without a common investor base, ex-post correlated fundamentals or interconnectedness. Our wake-up call theory generates testable implications for laboratory experiments and new empirical predictions.

Keywords: contagion; information acquisition; wake-up call; mixture distribution (search for similar items in EconPapers)
JEL-codes: C70 D83 G01 (search for similar items in EconPapers)
Pages: 79 pages
Date: 2013-10-01, Revised 2014-03-01
New Economics Papers: this item is included in nep-cdm, nep-cta and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Working Paper: A Wake-Up-Call Theory of Contagion (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:rbnkwp:0282

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