Market contagion can spread rapidly during times of uncertainty from "summary" of Financial Markets and Institutions, Global Edition by Frederic S. Mishkin,Stanley G. Eakins
During periods of uncertainty, market contagion has the potential to spread rapidly across financial markets. This phenomenon occurs when a shock in one market spills over into other markets, causing disruptions and amplifying the initial impact. The interconnectedness of global financial markets means that adverse events in one market can quickly transmit to others, creating a domino effect that can lead to widespread instability. The speed at which market contagion can spread during times of uncertainty is often exacerbated by factors such as panic selling, herding behavior, and information asymmetry. Investors may react irrationally to unfolding events, leading to a cascade of selling that can drive prices down across multiple asset classes. In addition, the lack of reliable information during periods of uncertainty can create confusion and volatility, further fueling contagion effects. Market contagion can also be amplified by the presence of complex financial instruments and interconnected financial instit...
Similar Posts
The Phillips curve shows the tradeoff between inflation and unemployment
The Phillips curve is a fundamental concept in economics that illustrates the relationship between inflation and unemployment. ...
A few foresighted individuals bet against the market
In a world where everyone seemed to be betting on the market to keep rising, a small group of individuals had a different idea....
Wall Street traders driven by selfishness
The Wall Street traders care only for themselves. It's not that they don't care about other people, it's that they care about o...
Free markets do not lead to efficiency
The idea that free markets automatically lead to efficiency is one of the most fundamental assumptions of capitalist ideology. ...
Regulatory shortcomings
The failures of regulatory oversight were glaringly evident during the financial crisis of 2008. The very institutions that wer...
Mental accounting can impact investment strategies
Mental accounting refers to the tendency for individuals to mentally categorize their money into separate accounts based on var...
Debt relief measures should be implemented cautiously
When considering debt relief measures, it is crucial to proceed with caution. While debt relief can provide much-needed relief ...
Panic selling ensued
The great break came very suddenly and with dramatic force. The market had been declining for a week or more, and then came a m...
Rational and irrational forces coexist in markets
In the tumultuous world of financial markets, one can observe a delicate dance between rational and irrational forces, each exe...
Diversify your portfolio to minimize risk
One of the most important principles to remember in investing is to spread out your investments across different asset classes....
