Hidden Bibliographic Details
| Other authors / contributors: | Gelos, Gaston, author.
Reinhart, Carmen M., author.
International Monetary Fund. Western Hemisphere Department, issuing body.
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| ISBN: | 1282050931
9781282050938
9781451855319
1451855311
9781451900583
1451900589
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| Notes: | Includes bibliographical references.
Restrictions unspecified
Electronic reproduction. [S.l.] : HathiTrust Digital Library, 2010.
Master and use copy. Digital master created according to Benchmark for Faithful Digital Reproductions of Monographs and Serials, Version 1. Digital Library Federation, December 2002. http://purl.oclc.org/DLF/benchrepro0212
digitized 2010 HathiTrust Digital Library committed to preserve
Print version record.
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| Summary: | One plausible mechanism through which financial market shocks may propagate across countries is through the effect of past gains and losses on investors' risk aversion. We first present a simple model on how heterogeneous changes in investors' risk aversion affect portfolio decisions and stock prices. Second, we empirically show that, when funds' returns are below average, they adjust their holdings toward the average (or benchmark) portfolio. In other words, they tend to sell the assets of countries in which they were "overweight," increasing their exposure to countries in which they were "underweight." Based on this insight, we construct a matrix of financial interdependence reflecting the extent to which countries share overexposed funds. This index can improve predictions about which countries are likely to be affected by contagion from crisis centers.
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| Other form: | Print version: Broner, Fernando. When in peril, retrench. [Washington, D.C.] : International Monetary Fund, ©2004
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