Interconnectedness amplifies systemic risks from "summary" of Why Stock Markets Crash by Didier Sornette
The concept that interconnectedness amplifies systemic risks is a fundamental principle in understanding why stock markets crash. When different elements within a system are interconnected, they can have a multiplying effect on the overall risk level. This means that a disturbance in one part of the system can quickly spread and have far-reaching consequences throughout the entire system. In the context of stock markets, interconnectedness refers to the various relationships and dependencies between different market participants, financial instruments, and institutions. For example, when one major financial institution experiences a crisis, it can have a domino effect on other institutions that are connected to it through various channels such as lending relationships, derivative contracts...
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