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

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  • Lars Helge Haß
  • Christian Koziol
  • Denis Schweizer

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.

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  • Lars Helge Haß & Christian Koziol & Denis Schweizer, 2014. "What Drives Contagion in Financial Markets? Liquidity Effects versus Information Spill†Over," European Financial Management, European Financial Management Association, vol. 20(3), pages 548-573, June.
    • Handle: RePEc:bla:eufman:v:20:y:2014:i:3:p:548-573
    DOI: 10.1111/j.1468-036X.2013.12011.x
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    3. Andreas Chouliaras & Theoharry Grammatikos, 2017. "Extreme Returns in the European financial crisis," European Financial Management, European Financial Management Association, vol. 23(4), pages 728-760, September.
    4. Zhou, Shengjie & Ye, Qing, 2023. "Margin trading and spillover effects: Evidence from the Chinese stock markets," Emerging Markets Review, Elsevier, vol. 54(C).
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    6. Thomas Paul & Thomas Walther & André Küster-Simic, 2022. "Empirical analysis of the illiquidity premia of German real estate securities," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 36(2), pages 203-260, June.

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