Contagion Effect |
| Credit: Gazeta SGH |
MEANING
• In economics and finance, a contagion is defined as a situation in which a shock in one economy/region spreads and impacts others
• The contagion effect explains how economic crises or booms can spread across various countries/regions
• This phenomenon can occur both domestically and internationally
HOW DOES IT HAPPEN?
• The basic underlying, in which price changes in one market are caused by shocks or volatility in the other market, is that perfect information flow exists
• This possibility has grown as economies' interconnection and correlation have grown
• There are a number of additional factors that could exacerab the contagion affect, if not cause it
CONTAGION DURING COVID-19
• The infection extended to "corona" assets, which sounds like they're part of the epidemic even if theyweren. For example, Corona Beer.
• Herding behaviour in Cryptocurrency markets increased as well
• The financial markets of most countries took a hit. The introduction of vaccines slightly improved the situation, although the bear run continues
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