Theories of Contagion- The Role of International Portfolio Flows

After the Mexican Asian and Russian financial crisis the phenomenon ofcontagion became increasingly important. Existing studies indicate that variousexplanations for the transmission of crises exist. This book gives an overviewover theories that try to explain contagion caused by portfolio flows ofinternational investors. Theories such as the occurrence of information cascadesthe effects of international portfolio diversification and optimizationthe importance of information asymmetries cross-market re-balancing effectsrisk aversion and wealth effects are discussed in detail. The analysissuggests that information asymmetries and changes in risk aversion hold animportant role in explaining contagious sellouts. The book addresses itself toeconomists policy makers as well as portfolio and fund manager.