DP14395 Did Globalization Kill Contagion?

Author(s):	Olivier Accominotti, Marie Brière, Aurore Burietz, Kim Oosterlinck, Ariane Szafarz
Publication Date:	February 2020
Date Revised:	February 2020
Keyword(s):	contagion, economic integration, Financial history, Globalization, market interdependence, Stock market
JEL(s):	E44, F36, F65, G15, N20
Programme Areas:	Economic History
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=14395

Does financial globalization lead to contagion? We scrutinize linkages between international stock markets in a long historical perspective (1880-2014). Our results highlight that without globalization, contagion cannot exist. However, if cross-market correlations are very high, globalization kills contagion. We show that financial contagion was absent from stock markets in both the period of deglobalization of 1918-1971 and the era of "extreme" globalization of 1972-2014 but was present in the period of "moderate" globalization of 1880-1914. Our results suggest that contagion could become a significant problem if financial markets return to a more moderate level of globalization.